At January 1, 2017, Headland Company’s outstanding shares included the following. 293,000 shares of $50 par...

At January 1, 2017, Headland Company’s outstanding shares included the following. 293,000 shares of $50 par value, 7% cumulative preferred stock 955,000 shares of $1 par value common stock Net income for 2017 was $2,528,000. No cash dividends were declared or paid during 2017. On February 15, 2018, however, all preferred dividends in arrears were paid, together with a 5% stock dividend on common shares. There were no dividends in arrears prior to 2017. On April 1, 2017, 470,000 shares of common stock were sold for $10 per share, and on October 1, 2017, 120,000 shares of common stock were purchased for $19 per share and held as treasury stock. Compute earnings per share for 2017. Assume that financial statements for 2017 were issued in March 2018.

How do I find the weighted shares forOct-Dec??

Expert Solution

Table for the calculation of weighted average number of outstanding shares:

Event	Dates	Duration	Outstanding shares	Weighted shares
Opening balance	Jan 1 - Mar 31	3/12	955000	238750
Issues shares	1 Apr - Sept 30	6/12	1425000	712500
Buy-back shares	1 Oct - Dec 31	3/12	1305000	326250
			Total	1277500

Also, on 15th Feb 2018, share dividend of 5% is given, so the total number of outstanding shares will increase by 5%.

Now, weighted average number of outstanding shares = 1277500 * (1+0.05) = 1,341,375

Net Income = $2,528,000

Dividend to Preferred shareholders = 7%*293000*50 = 1,025,500

Income distributable to equity shareholders = 2,528,000 - 1,025,500 = 1,502,500

Earning per share = Income distributable to equity shareholders / Weighted average of outstanding shares

= 1,502,500 / 1,341,375 = $1.12

Weighted shares for Oct-Dec are given in table = 326,250

Calculation can be shown as = Total number of shares outstanding * 3/12 = (955,000+470,000-120,000)*3/12 = 326,250

ekkarill92 answered 1 year ago

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