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Chapter 16: Q18E (page 878)

16-18 (L04) (EPS: Simple Capital Structure) Flagstad Inc. presented the following data.

Net income \(2,500,000

Preferred stock: 50,000 shares outstanding,

\)100 par, 8% cumulative, not convertible 5,000,000

Common stock: Shares outstanding 1/1 750,000

Issued for cash, 5/1 300,000

Acquired treasury stock for cash, 8/1 150,000

2-for-1 stock split, 10/1

Instructions

Compute earnings per share.

Short Answer

Expert verified

Earnings per share of Flagstad inc. is $1.18

Step by step solution

01

Computation of weighted average shares outstanding

EVENT

DATE OUTSTANDING

SHARES OUTSTANDING

RESTATEMENT

FRACTION OF YEAR

WEIGHTED SHARES

Beginning balance

Jan 1- May 1

750,000

2

4/12

500,000

Issued shares

May 1- Aug 1

1,050,000

(750,000+300,000)

2

3/12

525,000

Reacquired shares

Aug 1- Dec 31

900,000

(1,050,000-150,000)

2

5/12

750,000

Weighted average number of shares
1,775,000

Net Income

$2,500,000

Preferred dividend (5,000*100*8%)

-$400,000

Net income less preferred dividend

$2,100,000

02

Computation of earnings per share

Earningspershare=NetincomeapplicabletocommonstockWeightedaveragenumberofsharesoutstanding=$2,100,0001,775,000=$1.18

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