At January 1, 2017, Concord Company’s outstanding shares included the following.

Question

At January 1, 2017, Concord Company’s outstanding shares included the following.

Net income for 2017 was $2,493,000. 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, 447,000 shares of common stock were sold for $10 per share, and on October 1, 2017, 105,000 shares of common stock were purchased for $21 per share and held as treasury stock.

Compute earnings per share for 2017. Assume that financial statements for 2017 were issued in March 2018. (Round answer to 2 decimal places, e.g. $2.55.)

300,000 shares of $50 par value, 7% cumulative preferred stock 959,000 shares of $1 par value common stock

Explanation / Answer

Solution:

Earning per share = Earning available for common shareholders / Weighted average outstanding shares

Earning available for common shareholders = Net Income - Preference dividend = $2,493,000 - (300000 * $50 * 7%) = $1,443,000

Earning per share = $1,443,000 / 1268000 = $1.14 per share

Computation of weighted average outstanding shares Period Outstanding shares Fraction Weighted average outstanding shares 1-Jan-17 to 31-Mar-17 959000 3/12 239750 1-Apr-17 to 30-Sep-17 1406000 6/12 703000 1-Oct-17 to 31-Dec-17 1301000 3/12 325250 Weighted average outstanding shares 1268000

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