On January 1, 2012, Stewart Corporation had 1,000,000 ordinary shares outstandin

Question

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 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

Answer

Calculation of weighted average number of shares

1,000,000 * 2/12 = 166,666.67
1,150,000 * 4/12 = 38,3333.33
900,000 * 6/12 = 450,000

WA number of shares: 1,000,000 shares

Calculation of Net income for common stock:

Net income for common stock = Net income - preference dividend

=$3200000 - $125000

=$3075000

Hence earnings per share for 2012 for Stewart Corporation.

=Net income / WA number of shares

=$3075000 / 1,000,000 shares

=3.075 per share

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