Question

On January 1, 2017, Ivanhoe Ltd. had 500,000 common shares outstanding. During 2017, it had the following transactions that affected the common share account: Feb. 1 Issued 157,000 shares. Mar. 1 Issued a 19% stock dividend. May 1 Acquired 168,000 common shares and retired them. June 1 Issued a 2-for-1 stock split. Oct. 1 Issued 71,000 shares. The company’s year end is December 31. Determine the weighted average number of shares outstanding as at December 31, 2017. Assume that Ivanhoe earned net income of $3,452,000 during 2017. In addition, it had 110,000 of 11%, $100 par, non-convertible, non–cumulative preferred shares outstanding for the entire year. Because of liquidity limitations, however, the company did not declare and pay a preferred dividend in 2017. Calculate earnings per share for 2017, using the weighted average number of shares determined above. Assume that Ivanhoe earned net income of $3,452,000 during 2017. In addition, it had 110,000 of 11%, $100 par, non-convertible, cumulative preferred shares outstanding for the entire year. Because of liquidity limitations, however, the company did not declare and pay a preferred dividend in 2017. Calculate earnings per share for 2017, using the weighted average number of shares determined above. Assume that Ivanhoe earned net income of $3,452,000 during 2017. In addition, it had 110,000 of 11%, $100 par, non-convertible, non–cumulative preferred shares outstanding for the entire year. Because of liquidity limitations, however, the company did not declare and pay a preferred dividend in 2017. Assume that net income included a loss from discontinued operations of $400,000, net of applicable income taxes. Calculate earnings per share for 2017

Answer 1

Adjustment fo pre dividend shares to post dividend and stock split
			Stock Dividend	Post Dividend	Stock Split	Post Stock Split
1-Jan	Opening	500,000	95000	595,000	595,000	1,190,000
1-Feb	Issued	157,000	29830	186,830	186,830	373,660
		657,000		781,830	781,830	1,563,660
1-May	Buy Back			(168,000)	(168,000)	(336,000)
				613,830	613,830	1,227,660
1-Oct	Issued					71000
						1,298,660
Calculation of weighted average number of shares
Period	Shares Outstanding Post Stock Dividend and Stock Split	Fraction of Year Outstanding	No of Shares
Jan-17	1,190,000	1/12	99,166.7
February 2017 to April 2017	1,563,660	3/12	390,915.0
May to September 2017	1,227,660	5/12	511,525.0
October to December 2017	1,298,660	3/12	324,665.0
Weighted Average Number of Shares			1,326,271.7
Net Income- Case 1		$                       3,452,000	Since non cumulative, not to be substacted as they are not to be paiod in future
Net Income- Case 2	3452000-(110000*100*11%)	$                       2,242,000
Net Income- Case 3
Income from Continuing Operations	3452000+400000	$                       3,852,000
Loss from Discontiuing Operations		$                        (400,000)
Net Income		$                       3,452,000
EPS= Net Income Attributable to Equity Shareholders/ Weighted Average Number of Shares
Case	Net Income	Weighted Average Number of Shares	EPS
1	$                                          3,452,000	1,326,271.7	2.60
2	$                                          2,242,000	1,326,271.7	1.69
3- EPS from continuing operations	$                                          3,852,000	1,326,271.7	2.90
3- EPS from discontinuing operations	$                                           (400,000)	1,326,271.7	(0.30)
3- EPS of the company	$                                          3,452,000	1,326,271.7	2.60