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_____4. Evie Corp, has the following Stockholders’ Equity account balances and a

ID: 2533735 • Letter: #

Question

_____4. Evie Corp, has the following Stockholders’ Equity account balances and activity for Year 2.

Net income

$8,500,000

Retained earnings

$5,955,000

Preferred stock shares outstanding

1,000

Common stock shares outstanding at January 1, Yr 2

3,750,000

Additional Common shares issued at July 1, Yr 2

10,000

2-for-1 stock split at December 31, Yr 2

Preferred Dividends

$15,000

Common Dividends

$75,000

Year 1 EPS

$2.20

Earnings per share =         8500000/ 3,755,000* = 2.26

* Compute Denominator: Weighted average common shares outstanding

Date

Shares

Portion of year

Weighted Average Shares

January 1, Y2

3,750,000

12

3,750,000

July 1, Y2

10,000

6

5,000

Weighted Average December 31 before split

Stock split 2-for-1

*Total Weighted Average, 12/31/Y2

Note: Year 1 restated

$2.20 / 2 =_____

Net income

$8,500,000

Retained earnings

$5,955,000

Preferred stock shares outstanding

1,000

Common stock shares outstanding at January 1, Yr 2

3,750,000

Additional Common shares issued at July 1, Yr 2

10,000

2-for-1 stock split at December 31, Yr 2

Preferred Dividends

$15,000

Common Dividends

$75,000

Year 1 EPS

$2.20

Explanation / Answer

Earnings Per Share = $1.13 per share

Earnings Per Share = Net Income for common stock holders/ Weighted Average Shares Outstanding

Net Income for common stock holders = Net Income – Preferred Dividend

= $85,00,000 - $15,000

= $ 84,85,000      

Weighted Average Shares Outstanding

Date

Shares

Portion of year

Weighted Average Shares

January 1, Y2

37,50,000

12 Months

37,50,000

July 1, Y2

10,000

6 Months

5,000

Weighted Average December 31 before split

37,55,000

Stock split 2-for-1

37,55,000

12 Months

37,55,000

*Total Weighted Average, 12/31/Y2

75,10,000

Earnings Per Share        = $ 84,85,000 / 75,10,000 Shares

                                      = $1.13 per share (Rounded to two decimal)

Date

Shares

Portion of year

Weighted Average Shares

January 1, Y2

37,50,000

12 Months

37,50,000

July 1, Y2

10,000

6 Months

5,000

Weighted Average December 31 before split

37,55,000

Stock split 2-for-1

37,55,000

12 Months

37,55,000

*Total Weighted Average, 12/31/Y2

75,10,000