Presented below is information related to Starr Company. 1. Net Income [includin

Question

Presented below is information related to Starr Company.

1. Net Income [including a discontinued operations gain (net of tax) of $65,000] $342,000
2. Capital Structure
a. Cumulative 5% preferred stock, $100 par, 6,400 shares issued and outstanding $640,000
b. $10 par common stock, 74,000 shares outstanding on January 1. On April 1, 40,000 shares were issued for cash. On October 1, 16,000 shares were purchased and retired. $1,000,000
c. On January 2 of the current year, Starr purchased Oslo Corporation. One of the terms of the purchase was that if Oslo net income for the following year is $242,000 or more, 50,000 additional shares would be issued to Oslo stockholders next year. Oslo’s net income for the current year was $2,600,000.
3. Other Information
a. Average market price per share of common stock during entire year $30
b. Income tax rate 30%

Compute weighted average shares outstanding.

Weighted average shares outstanding

Compute earnings per share for the current year. (Round answers to 2 decimal places, e.g. 52.75.)

Basic earnings per share $
Diluted earnings per share $

Explanation / Answer

SOLUTION

Weighted average shares outstanding- 100,000

Calculation of income available for common shareholders-

Basic Earnings per share-

Diluted Earnings per share -

Date Period (A) Number of shares (B) Number of outstanding shares (A*B) Jan.1 12/12 74,000 74,000 April 1 9/12 40,000 30,000 Oct.1 3/12 16,000 (4,000) 100,000

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