The Alford Group had 202,000 shares of common stock outstanding at January 1, 20
ID: 2594479 • Letter: T
Question
The Alford Group had 202,000 shares of common stock outstanding at January 1, 2016. The following activities affected common shares during the year. There are no potential common shares outstanding. 2016 Feb. 28 Purchased 6,000 shares of treasury stock Nov. 30 Issued 24,000 new sha Dec. 31 Net income for 2016 is $400,000. 2017 Jan. 15 Declared and issued a 2-for-1 stock split. Dec. 31 Net income for 2017 is $400,000. Required: 1. Determine the 2016 EPS. (Enter your answers in thousands.) Numerator / | Denominator = Earnings per Share 2. Determine the 2017 EPS. (Enter your answers in thousands.) Numerator DenominatorEarnings per ShareExplanation / Answer
1. Numerator: Net Income = $400,000; Preferred dividends = $0
Denominator: Weighted average of shares
1/1 – 12/31 202,000 x (12/12) = 202,000
2/28 – 12/31 (6,000)x (10/12) = (5,000)
10/31 – 12/31 6,000 x (2/12) = 1,000
11/30 – 12/31 24,000 x (1/12) = 2,000
Weighted average # shares outstanding 200,000
2016 EPS = $400,000 ÷ 200,000 = $2.00
2) 2017: Numerator: Net Income = $400,000; Preferred dividends = $0
Weighted average of shares
1/1 – 12/31 202,000–6,000+6,000+24,000 = 226000 X 2 = 452,000
2017 EPS = 400,000 / 452,000 = $0.88
3) For comparative purposes, the 2-for-1 stock split in 2017 needs to be retroactively applied to the earliest date being presented, i.e., January 1, 2016.
Weighted Average shares outstanding from 2016 = 200,000
Retroactive application of stock split x 2
Weighted Average of shares for 2016 400,000
For comparative purposes:
2016 EPS = $400,000 ÷ 400,000 = $1.00
2017 EPS = $400,000 ÷ 452,000 = $0.88
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