In: Accounting
The following data for Garrison Inc. for 2019 is available:
Net Income...........................................................................................$1,800,000
Transactions in Common Shares
1/1/19 Beginning number of shares outstanding 600,000
3/1/19 Purchase of treasury shares 50,000
6/1/19 15% stock dividend
11/1/19 Issuance of shares for cash 80,000
Throughout 2019, the company also had 10,000 shares of 6%, $50 par value cumulative convertible preferred stock issued and outstanding. Each share of preferred stock is convertible into 10 shares of common stock (adjusted for the stock dividend).
1. Compute the basic earnings per share for 2019.
2. Compute the diluted earnings per share for 2019.
Weighted Average Shares
dates | event | shares outstanding (A) | time fraction | STOCK DIVIDEND RESTATEMENT (C) | weihted Average Shares Outstanding |
1/1/2019 | (BEGINNING BAL ) | 600000 | (2/12) | 1.15 | 690000 |
3/1/2019 | treaury Stock | 50000 | (3/12) | 1.15 | 47916.66667 |
6/1/2019 | STOCK DIVIDEND | 632500 | (5/12) | 1 | 368958.3333 |
11/1/2019 | issued | 80000 | (2/12) | 1 | 13333.33333 |
= 690000 - 47917 + 368958 + 13334
= 1024375
Basic EPS=
(Net income – preference dividend ) / Average outstanding shares
Net income = 1800000
Common Shares outstanding = 1024375
Preference dividend = 10000 * 50 * 6%
= $ 30000
Basic Eps = (1800000-30000)/ 1024375
= 1.72 per share
Diluted EPS
=Net income after giving
effect to diluted share / (Average outstanding
shares + Diluted
shares)
dilued Shares = 10000 * 10 ( each preference Share converted into
10 Shares )
= 100000 Shares
Diluted Eps = 1800000 / ( 1024375 + 100000 )
= 1.6 per Share
=