Question

Comparative Statements of Shareholders' Equity for Locke Intertechnology Corporation were reported as follows for the fiscal years ending December 31, 2016, 2017, and 2018 Retained Earnings $1,878 LOCKE INTERTECHNOLOGY CORPORATION statements of Shareholders Equity For the Years Unded Dec 31, 2016, 2017, and 2018 (sin millions) Preterred Common Additional stock, stock Paid-in $10 par SL par Capital Balance at January 1, 2016 $ 55 $ 495 Sale of preferred shares Sale of common shares, 7/1 Cash dividend preferred Canh dividend common Set income Balance at December 31, 2016 Retirement of common shares, 4/1 Cash dividend preferred Cash dividend common 3-for-2plit effected in the form of a common stock dividend. 8/12 Net Income Balance at December 31, 2017 101 common stock dividend, 5/1 Sale of common shares, 9/1 Cash dividend preferred Cash dividend common Net income $1, 101 Balance at December 31, 2018 (1) (16) 290 2. 151 (20) (1) (20) Total Shareholders Equity $2,428 480 90 (1) (16) 290 3,271 (60) (1) (20) (36) (30) 2, 490 (99) 380 3,570 (2) (2) (22) $2,779 $ 3,992 Required: Infer from the statements the events and transactions that affected Locke Intertechnology Corporation's shareholders' equity and compute earnings per share as it would have appeared on the income statements for the years ended December 31, 2016, 2017, and 2018. No potential common shares were outstanding during any of the periods shown (Enter your answers in millions rounded to 1 decimal place (.e., 5,500,000 should be entered as 5.5).)

Answer 1

ANSWER

Compute EPS of Corporation L for the year ended December 31, 2016 Step 1: Compute weighted average common shares which were issued and outstanding from July 1, 2016 to December 31, 2016 (6 months). The weighted average number of shares is calculated by multiplying the number of shares sold and the proportionated holding period of shares. Use the following formula to calculate the weighted average number of shares: Weighted average of shares = Number of shares sold < Time period = 9,000,000 shares x = 4,500,000 shares

Step 2: Compute the total weighted average number of common shares The weighted average number of shares is calculated by multiplying the number of shares sold and the proportionated holding period of shares. Use the following formula to calculate the weighted average number of shares: Details Weighted average number of shares held on January 1, 2016 Weighted average number of shares sold on July 1, 2016 | Total weighted average number of shares Number of Shares 55.000.000 4,500,000 59,500,000

Step 3: Compute EPS for December 31, 2016: Earnings per share is calculated by dividing the difference of net income and preference dividends with the weighted average number of common shares outstanding as shown below: Earnings per share Net income-Preferred dividends Weighted average number of common shares outstanding $290,000,000 - $1,000,000 59,500,000 shares = $4.86 per share Hence, earnings per share is $4.86.

Compute EPS of Corporation L for the year ended December 31, 2017: Step 1: Compute weighted average common shares which were retired from April 1, 2017 to December 31, 2017 (9 months) after stock-split. The weighted average number of shares is calculated by multiplying the number of shares sold and the proportionated holding period of shares. Use the following formula to calculate the weighted average number of shares: Number of shares retired Weighted average of shares = { Stock-split rate xTime period = 4,000,000 shares xx = 4,500,000 shares

Step 2: Compute outstanding number of shares after stock-split. Total number of shares Total number of shares outstanding after stock-split S on December 31, 2017 ~ Stock split rate) = 64,000,000 shares x2 = 96,000,000 shares

Step 3: Compute the total weighted average number of common shares. The weighted average number of shares is calculated by multiplying the number of shares sold and the proportionated holding period of shares. Use the following formula to calculate the weighted average number of shares: Details | Weighted average number of shares after stock-split | Weighted average number of retired stock | Total weighted average number of shares Number of Shares 96,000,000 (4,500,000 91,500,000

Step 4: Compute EPS for December 31, 2017: Earnings per share is calculated by dividing the difference of net income and preference dividends with the weighted average number of common shares outstanding as shown below: Earnings per share Net income-Preferred dividends Weighted average number of common shares outstanding $380,000,000 - $1,000,000 91,500,000 shares = $4.14 per share Hence, earnings per share is $4.14.

Compute EPS of Corporation L for the year ended December 31, 2018: Step 1: Compute stock dividend shares on shares held on December 31, 2017: Number of shares held on Stock dividend }={December 31, 2017 shares * Stock dividend percentage = 90,000,000 shares x 10% = 9,000,000 shares

Step 2: Compute weighted average common shares which were issued and outstanding from September 1, 2018 to December 31, 2018 (4 months). The weighted average number of shares is calculated by multiplying the number of shares sold and the proportionated holding period of shares. Use the following formula to calculate the weighted average number of shares: Weighted average - Number of shares sold x Time period of shares = 3,000,000 shares x- = 1,000,000 shares

Step 3: Compute the total weighted average number of common shares The weighted average number of shares is calculated by multiplying the number of shares sold and the proportionated holding period of shares. Use the following formula to calculate the weighted average number of shares: Details Weighted average number of shares held on December 31, 2017 Weighted average number of shares sold on September 1, 2017 Weighted average number of stock dividend shares Total weighted average number of shares Number of Shares 90,000,000 9,000,000 1.000.000 100,000,000

Step 4: Compute EPS for December 31, 2018: Earnings per share is calculated by dividing the difference of net income and preference dividends with the weighted average number of common shares outstanding as shown below: Earnings Net income-Preferred dividends per share Weighted average number of common shares outstanding $412,000,000 - $2,000,000 100,000,000 shares = $4.10 per share Hence, earnings per share is $4.10.

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