Earnings per Share Disclosure Extreme Company reported the following information

Question

Earnings per Share Disclosure

Extreme Company reported the following information about its stock on its December 31, 2016, balance sheet:

The following amounts were taken from Extreme’s income statement:

The only stock issued during 2016 was 80,000 shares of common stock issued on June 30, 2016. No dividends were declared during 2016.

Required:

Calculate all earnings per share amounts for 2016. If required, round your answer to two decimals.

Preferred stock, $2 par value, 5% cumulative, 300,000 shares authorized, 120,000 shares issued and outstanding $240,000 Common stock, $1 par value, 500,000 shares authorized, 240,000 shares issued and outstanding 240,000

Explanation / Answer

Earnings per share = Earnings available for equity stockholder / Average number of equity stock outstanding

= (Net income - Preference dividend) / Average number of equity stock outstanding

= ( 520000 - 12000) / 200000*

= $2.54

*Average number of equity stock outstanding =

Beginning of year stock = 240000 - 80000 = 160000

Stock issued on June 30, 2016 = 80000

Average number of equity stock outstanding = 160000*12/12 + 80000 * 6/12

= 200000

#If extraordinary items were reported seperately on the income statement, then extraordinary items will be adjusted in computation of earnings per share.

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