Need detailed assistance with Q1, On January 1, 2015, warren Corporation had 1,0
ID: 2474796 • Letter: N
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Need detailed assistance with Q1, On January 1, 2015, warren Corporation had 1,000,000 shares of common stock On July 1, the corporation issued 150,000 new shares to raise additional capital. On July 1, the corporation declared and issued a 2-for-1 stock split. On October 1, the corporation purchased on the market 500,000 of its own outstanding shares. Instruction - Compute the weighted average number of shares of 5% preferred stock. $50 par value outstanding. There were no changes to the preferred shares in 2015. On December 31, 2015. Warren Corporation reported net income of $38 million. Instructions Compute the basic earnings per share for 2015. Compute the diluted earnings per share for 2015. Compute the dividend payout ratio for 2015. Who gets more dividends, the preferred or the common shareholders? Compute the weighted average number of shares to be used in computing earnings per share for 2015 between the common and preferred shareholders. On January 1, 2015. Warren Corporation had 1,000.000 shares of common stock outstanding. On March 1. the corporation issued 150,000 new shares to raise additional capital.Explanation / Answer
Ans 1. Computation of weighted average number of shares to be used in computing EPS for 2015:
Outstanding Shares Increase (Decrease) Months O/s Share Months
Jan 1 1,000,000 ---------- 2 2/1 4,000,000
Mar 1 1,150,000 150,000 4 2/1 9,200,000
(Additional Capital)
Jul 1 2,300,000* 1,150,000 3 6,900,000
Oct 1 1,800,000 (500,000) 3 5,400,000
12 25,500,000
Weighted Average no of Shares = 25,500,000/12 = 2,125,000
Note : On July 1, Co declared and issued a 2 for 1 stock split, this implies
For 1 share held, the shareholder wil be issued 2 shares
Therefore, for 1,150,000 shares 2,300,000 (1,150,000*2) shares are issued.
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