Question

Case 4: Earnings per share: Simple capital structure On January 1, 20x3, the Norton corporation had 350,000 common shares outstanding. During the year the following transactions were made that affected your common stock account:

February 1 Issued 130,000 shares.

April 1 Re-acquired 50,000 shares.

June 1 I declare a dividend in shares of 15%.

August 1 Issued 100,000 shares.

October 1 Issued a 2-by-1 Split Stock

November 1 Reissued 30,000 shares in portfolio

Instructions: a) Determine the average of outstanding shares to be used in the calculation of earnings per share on December 31, 20x3.

b) Assume that at the end of the period the corporation had a Net Profit of $ 4,268,000. Also consider that you own 50,000 cumulative preferred shares with a profit of $ 15 and an even value of $ 50. Determine the earnings per share that should be reported in 20X3.

Answer 1

a)

Date	Transaction	Period of outstanding	number of shares outstanding [A]	Number of months outstanding[B]	stock split and stock dividend reinstated [C]	weighted average number of shares outstanding[A*B*C]
Beginning balance		1Jan -1Feb	350000	1/12	2* 1.15	67083
1Feb	Issued	1Feb -1Apr	350000+130000=480000	2/12	2*1.15	184000
1April	reacquired	1April -1June	480000-50000=430000	2/12	2*1.15	164833
1June	stock dividend	1June -1Aug	430000	2/12	2*1.15	164833
1Aug	issued	1Aug- 1Oct	430000+100000=530000	2/12	2	176667
1oct	stock split	1Oct- 1Nov	530000	1/12	2	88333
1Nov	reissue	1Nov -31Dec	530000+30000=560000	2/12		93333
weighted average number of shares outstanding						939082 shares

b)Preferred dividend = 50000*15=750000

EPS =[Net income -preferred dividend]/weighted average number of common shares outstanding

         =[4268000-750000]/939082

       = 3518000/939082

        = $ 3.75 per share