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EPS: Simple Capital Structure) On January 1, 2018, Wilke Corp. had 480,000 shares of common stock outstanding. During 2018, it had the following transactions that affected the common stock account.

February 1 Issued 120,000 shares

March 1 Issued a 10% stock dividend

May 1 Acquired 100,000 shares of treasury stock

June 1 Issued a 3-for-1 stock split

October 1 Reissued 60,000 shares of treasury stock

Instructions

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

(b) Assume that Wilke Corp. earned net income of \(3,456,000 during 2018. In addition, it had 100,000 shares of 9%, \)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.

(d) Assume the same facts as in part (b), except that net income included a loss from discontinued operations of $432,000 (net of tax). Compute earnings per share for 2018.

Step by step solution

01

(a) Computation of Weighted-average number of shares outstanding

EVENT	DATE OUTSTANDING	SHARES OUTSTANDING	RESTATEMENT	FRACTION OF YEAR	WEIGHTED SHARES
Beginning balance	Jan. 1–Feb. 1	480,000	1.1*3.0	1/12	132,000
Issued shares	Feb. 1–Mar. 1	600,000 (480,000+120,000)	1.1*3.0	1/12	165,000
Stock dividend	Mar. 1–May 1	660,000 (600,000 x 110%)	3.0	2/12	330,000
Reacquired shares	May 1–June 1	560,000 (660,000 – 100,000)	3.0	1/12	140,000
Stock split	June 1–Oct. 1	1,680,000 (560,000 x 3)		4/12	560,000
Reissued shares	Oct. 1–Dec. 31	1,740,000 (1,680,000+60,000)		3/12	435,000
Weighted-average number of shares outstanding					1,762,000

02

(b) Computation of earnings per share

Net Income(A)	$3,456,000
Weighted average number of common shares outstanding (B)	1,762,000
Earnings per share (A/ B)	$1.96

03

(c)  Computation of earnings per share

Net Income (3,456,000-900,000) (A)	$2,556,000
Weighted average number of common shares outstanding (B)	1,762,000
Earnings per share (A/ B)	$1.45

04

(d) Computation of earnings per share

Net Income	$3,456,000
Add: Loss from discontinued operations	$432,000
Income from continuing operations (A)	$3,888,000
Weighted average no of common shares outstanding (B)	1,762,000
Earnings per share (A/ B)	$2.21

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