Comparative Statements of Shareholders’ Equity for Locke Intertechnology Corpora

Question

Comparative Statements of Shareholders’ Equity for Locke Intertechnology Corporation were reported as follows for the fiscal years ending December 31, 2014, 2015, and 2016.

Infer from the statements the events and transactions that affected Locke Intertechnology Corporation's shareholders' equity and compute earnings per share as it would have appeared on the income statements for the years ended December 31, 2014, 2015, and 2016. No potential common shares were outstanding during any of the periods shown. (Enter your answers in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50).)

LOCKE INTERTECHNOLOGY CORPORATION Statements of Shareholders' Equity For the Years Ended Dec. 31, 2014, 2015, and 2016 ($ in millions) Preferred
Stock,
$10 par Common
Stock,
$1 par Additional
Paid-in
Capital Retained
Earnings Total
Shareholders'
Equity   Balance at January 1, 2014 $ 65 $ 515 $ 1,886 $ 2,466      Sale of preferred shares 9 450 459      Sale of common shares, 7/1 8 78 86      Cash dividend, preferred (1 ) (1 )      Cash dividend, common (15 ) (15 )      Net income 280 280   Balance at December 31, 2014 9 73 1,043 2,150 3,275      Retirement of common shares, 4/1 (6 ) (33 ) (18 ) (57 )      Cash dividend, preferred (1 ) (1 )      Cash dividend, common (19 ) (19 )      3-for-2 split effected in the form of
       a common stock dividend, 8/12 33.5 (33.5 )      Net income 380 380   Balance at December 31, 2015 9 100.5 976 2,492 3,578      10% common stock dividend, 5/1 10.05 110 (120.05 )      Sale of common shares, 9/1 3 35 38      Cash dividend, preferred (3 ) (3 )      Cash dividend, common (26 ) (26 )      Net income 420 420   Balance at December 31, 2016 9 $ 113.55 $ 1,121.5 $ 2,762.95 $ 4,007

Explanation / Answer

Answer :-

(1) Earning Per Shares as on 31st December 2014 are as follows:-

EPS = Net Income - Preference Dividend / No. of Shares

= $ 280 - $ 1 / 65 + 8(6 / 12)

= $ 279 / 69

= $4.04

(2) Earning Per Shares as on 31st December 2015 are as follows:-

EPS = Net Income - Preference Dividend / No. of Shares

= $ 380 - $ 1 / (73)(1.50) - (6)(9/12)(1.50)

= $ 379 / 102.75

= $3.69

(3) Earning Per Shares as on 31st December 2016 are as follows:-

EPS = Net Income - Preference Dividend / No. of Shares

= $ 420 - $ 3 / (100.50) ( 1.10) + (3) ( 4 /12)

= $ 417 / 111.55

= $3.74

Therefor EPS for 31st December 2014 = $4.04

EPS for 31st December 2015 = $3.69

EPS for 31st December 2016 = $3.74

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