The Alford Group had 340,000 shares of common stock outstanding at January 1, 20

ID: 2512976 • Letter: T

Question

The Alford Group had 340,000 shares of common stock outstanding at January 1, 2016. The following activities affected common shares during the year. There are no potential common shares outstanding.

12 value 0.50 points The Alford Group had 340,000 shares of common stock outstanding at January 1, 2016. The following activities affected common shares during the year. There are no potential common shares outstanding 2016 Feb. 28 Purchased 30,000 shares of treasury stock. Oct. 31 Sold the treasury shares purchased on February 28 Nov. 30 Issued 120,000 new shares Dec. 31 Net income for 2016 is $495,000 2017 Jan. 15 Declared and issued a 2-for-1 stock split. Dec. 31 Net income for 2017 is $495,000 Required 1. Determine the 2016 EPS. (Enter your answers in thousands.) Numerator DenominatorEarnings per Share 2. Determine the 2017 EPS. (Enter your answers in thousands.) NumeratorDenominatorEarnings per Share 3. At what amount will the 2016 EPS be presented in the 2017 comparative financial statements? (Enter your answers in thousands.)

Explanation / Answer

Numerator: Net Income = $495000; Preferred dividends = $0

Denominator: Weighted average # of shares

1/1-12/31

340000 x (12/12)

340000

2/28 – 12/31

30000 x (10/12)

(25000)

10/31 – 12/31

30000 x (2/12)

5000

11/30 – 12/31

120000 x (1/12)

10000

Weighted average # shares outstanding

330000

2016 EPS = $495000 ÷ 330000 = $1.5

2. 2017:

Numerator: Net Income = $495000; Preferred dividends = $0

Weighted average # of shares

1/1 – 12/31 340000–30000+30000+120000 = 460000 x 2 =920000

2017 EPS = $495000 ÷ 920000 = 0.53

3. For comparative purposes, the 2-for-1 stock split in 2017 needs to be retroactively applied to the earliest date being presented, i.e., January 1, 2016.

Weighted Average # shares outstanding from 2016 = 330000

Retroactive application of stock split x 2

Weighted Average #shares for 2016 660000

For comparative purposes: 2016 EPS = $660000 ÷ 495000 = $1.33

2017 EPS = $660000 ÷ 920000= $0.71