2. On January 1, 2012, Stewart Corporation had 1,000,000 ordinary shares outstan

Question

2.

On January 1, 2012, Stewart Corporation had 1,000,000 ordinary shares outstanding. On March 1, the corporation issued 150,000 new shares to raise additional capital. On July 1, the corporation declared and issued a 2-for-1 share split. On October 1, the corporation purchased on the market 600,000 of its own outstanding shares and retired them.

Net income for 2012 is $3,200,000

There are 50,000 preference shares outstanding, $5, stated value $100, cumulative, shares are 2 years in arrears.

There are 25,000 preference shares outstanding, 5%, par value $100, non-cumulative. Dividends were declared at the stated rate (percentage).

Instructions

Compute earnings per share for 2012 for Stewart Corporation.

Explanation / Answer

Earning Per Share

= Net Income Available to common stock share holder / Weighted average number of shares outstanding

Shares outstanding = {[ (1000000 x 12/12) + (150000 x 10/12) ] x 2(Share split) } - 600000 x 3/12

= 22,50,000 - 150000

= 21,00,000 Shares outstanding

Net Income Available to common stock share holder = Net Income - Preffered Dividends

= $ 32,00,000 - (50000 x 100 x 5% x 2) + (25000 x 100 x 5% )

= $ 32,00,000 - 500000 - 125000

= $ 25,75,000

Eernings Per Share = $ 25,75,000 / 21,00,000 Shares

= $ 1.22 per share

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ALL THE BEST !!!

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