Question

For the year ended December 31, 2018, Norstar Industries reported net income of $970,000. At January 1, 2018, the company had 1,090,000 common shares outstanding. The following changes in the number of shares occurred during 2018:

Apr.		30		Sold 90,000 shares in a public offering.
May		24		Declared and distributed a 5% stock dividend.
June		1		Issued 102,000 shares as part of the consideration for the purchase of assets from a subsidiary.

Required:

Compute Norstar's earnings per share for the year ended December 31, 2018. (Enter your answers in thousands.)

	Numerator / Denominator = Earnings per Share / =

Answer 1

Answer: $0.77

$970

/

1,267

=

$0.77

Working:

Stock dividends, Stock splits or Stock subscriptions (retroactively adjusted) - Shares are treated as if they had always been outstanding and included at full amount for current year.

Jan. 1	Shares outstanding	1,090,000
April 30	Shares sold	60,000 (90,000*8/12)
May 24	Stock dividend	57,500 [(1,090,000+60,000)*5%]
June 1	Shares issued	59,500 (102,000*7/12)
		12,67,000

Earnings per share = (Net Income - Preferred stock dividends) / Weighted average number of common stock outstanding  

= ($970,000 - $0) / 12, 67,000

= $0.77