Question

On January 1, 2021, Sarasota 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, 2021.

The weighted-average number of shares outstanding

b- Assume that Sarasota Corp. earned net income of $3,582,000 during 2021. 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 2021. Compute earnings per share for 2018, using the weighted-average number of shares determined in part (a).

Earnings Per Share

c- Assume the same facts as in part (b), except that the preferred stock was cumulative. Compute earnings per share for 2021.

Earnings Per Share

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 = $3582000 / 1751150 = $2.05

Solution c:

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

Earnings per share = (Net Income- Preferred Dividend) / weighted average number of shares outstanding = ($3582000- $900000) / 1751150 = $1.53