Question

On January 1, 2021, Ivanhoe Corp. had 478,000 shares of common stock outstanding. During 2021, it had the following transactions that affected the Common Stock account.

February 1		Issued 120,000 shares
March 1		Issued a 10% stock dividend
May 1		Acquired 102,000 shares of treasury stock
June 1		Issued a 3-for-1 stock split
October 1		Reissued 59,000 shares of treasury stock

(a) Determine the weighted-average number of shares outstanding as of December 31, 2018.

(b) Assume that Wilke Corp. earned net income of $3,456,000 during 2018. In addition, it had 100,000 shares of 9%, $100 par nonconvertible, noncumulative preferred stock outstanding for the entire year. Because of liquidity considerations, however, the company did not declare and pay a preferred dividend in 2018. Compute earnings per share for 2018, using the weighted-average number of shares determined in part (a).

(c) Assume the same facts as in part (b), except that the preferred stock was cumulative. Compute earnings per share for 2018.

(d) Assume the same facts as in part (b), except that net income included a loss from discontinued operations of $432,000 (net of tax). Compute earnings per share for 2018.

Answer 1

Solution a:

Computation of weighted average outastanding shares
	Number of shares	Stock Dividend Restatement	Stock Split Restatement	No. of months	Total Months	Weighted-average shares
Shares outstanding	478000	1.1	3	1	12	131450
Issued Shares	598000	1.1	3	1	12	164450
Stock Dividend	657800		3	2	12	328900
Reacquired Shares	555800		3	1	12	138950
3-for-1 stock split	1667400			4	12	555800
Reissued shares	1726400			3	12	431600
Total weighted average number of shares outstanding						1751150

Solution b:

Earnings per share = net Income / weighted average number of shares outstanding = $3456000 / 1751150 = $1.97 per share

Solution c:

Preferred dividend = 100000*$100*9% = $900,000

Earnings per share = (net Income- Preferred dividend) / weighted average number of shares outstanding = ($3456000- $900000) / 1751150 = $1.46 per share

Solution d:

Net Income	$34,56,000
Add: Loss from Discontinued Operations	$4,32,000
Income from continued operations	$38,88,000

Income Statement
For the Year ended Dec 31, 2018
Income from continued operations ($3888000/1751150)	$2.22
Loss from Discontinued Operations ($432000/ 1751150)	-$0.25
Net Income ($3456000/1751150)	$1.97