Accounting help please! EPS: Simple Capital Structure?

Accounting help please! EPS: Simple Capital Structure?

Postby erle » Sun Mar 13, 2011 9:32 am

On January 1, 2010, Chang Corp. had 480,000 shares of common stock outstanding. During 2010, it had the following transactions that affected the common stock account.
February 1 Issued 120,000 shares
March 1 Issued a 20% 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

(a) Determine the weighted average number of shares outstanding as of December 31, 2010.

(b) Assume that Chang Corp. earned net income of $3,256,000 during 2010. 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 2010. Compute earnings per share for 2010, using the weighted-average number of shares determined in part (a). (Round to 2 decimal places, e.g. 1.50.)

(c) Assume the same facts as in part (b), except that the preferred stock was cumulative. Compute earnings per share for 2010. (Round to 2 decimal places, e.g. 1.50.)

d) Assume the same facts as in part (b), except that net income included an extraordinary gain of $864,000 and a loss from discontinued operations of $432,000. Both items are net of applicable income taxes. Compute earnings per share for 2010. (Round to 2 decimal places, e.g. 1.50.)
erle
 
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Accounting help please! EPS: Simple Capital Structure?

Postby sterling » Sun Mar 13, 2011 9:34 am

(a) Weighted-average number of shares outstanding 1,939,000

(b) Earnings Per Share = $3,256,000 (Net Income)/1,939,000 (Weighted-Average Shares)= $1.68


(c) Earnings Per Share = ($3,256,000 – $900,000)/1,939,000 = $1.22


(d) Income from continuing operationsa $1.46
Loss from discontinued operationsb (.22 )
Income before extraordinary item 1.24
Extraordinary gainc .44
Net income $1.68
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Accounting help please! EPS: Simple Capital Structure?

Postby gaston74 » Sun Mar 13, 2011 9:35 am

(a) Determine the weighted average number of shares outstanding as of December 31, 2010.

480,000 x 1/12 = 40,000
600,000 x 1/12 = 50,000
720,000 x 2/12 = 120,000
620,000 x 1/12 = 51,667
1,860,000 x 4/12 = 620,000
1,920,000 x 3/12 = 480,000
Weighted average number of shares outstanding = 1,361,667

b) Assume that Chang Corp. earned net income of $3,256,000 during 2010. 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 2010. Compute earnings per share for 2010, using the weighted-average number of shares determined in part (a). (Round to 2 decimal places, e.g. 1.50.)

Since the preferred stock is noncumulative and no preferred dividends were declared, the calculation would be 3,256,000 / 1,361,667 = $2.39 EPS

d) Assume the same facts as in part (b), except that net income included an extraordinary gain of $864,000 and a loss from discontinued operations of $432,000. Both items are net of applicable income taxes. Compute earnings per share for 2010. (Round to 2 decimal places, e.g. 1.50.)

I am not sure how to do this one, maybe someone else can help.
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