On January 1, 2018, Buffalo Corp. had 488,000 shares of common stock outstanding. During 2018, it...

On January 1, 2018, Buffalo Corp. had 488,000 shares of common stock outstanding. During 2018, it had the following transactions that affected the Common Stock account. February 1 Issued 115,000 shares March 1 Issued a 10% stock dividend May 1 Acquired 96,000 shares of treasury stock June 1 Issued a 3-for-1 stock split October 1 Reissued 61,000 shares of treasury stock

a.Determine the weighted-average number of shares outstanding as of December 31, 2018.

b.Assume that Buffalo Corp. earned net income of $3,330,000 during 2018. In addition, it had 105,000 shares of 9%, $100 par nonconvertible, noncumulative preferred stock outstanding for the entire year. Because of liquidity considerations, however, the company did not declare and pay a preferred dividend in 2018. Compute earnings per share for 2018, using the weighted-average number of shares determined in part (a).

c.Assume the same facts as in part (b), except that the preferred stock was cumulative. Compute earnings per share for 2018.

Solutions

Expert Solution

a	Computation of weighted average number of shares outstanding as dec 2018
	Particulars	Dates	Outstanding shares	working	Stock dividend restatement	Stock split restatement	Number of months	12 months	Weighted shares
	Beginning Balance	Jan1 - Feb 1	488000	Given	1.1	3	1	12	134200
	Issued shares	Feb1 - Mar 1	603000	488000+115000	1.1	3	1	12	165825
	stock dividend	Mar1 - May 1	663300	603000*1.1		3	2	12	331650
	Reacquired shares	May 1 - June 1	567300	663300-96000		3	1	12	141825
	Stock split	June 1 - oct 1	1701900	567300*3			4	12	567300
	Reissued shares	Oct 1 - Dec 31	1762900	1701900+61000			3	12	440725
		Weighted number of shares outstanding							1781525


b
	Basic Earnings per share:
	[Netincome - Preferred dividends]/Weighted average number of shares outstanding
	$3330000/1781525
	1.869185108
	$1.87

c	Assume the same facts as in part (b) except preferred stock is cummulative
	Basic Earnings per share:
	[Netincome - Preferred dividends]/Weighted average number of shares outstanding
	[$3330000-$945000]/1781525
	1.338741
	$1.34

ekkarill92 answered 8 months ago

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