Question

The Alford Group had 340,000 shares of common stock outstanding at January 1, 2018. The following activities affected common shares during the year. There are no potential common shares outstanding.
  

2018
Feb.		28		Purchased 30,000 shares of treasury stock.
Oct.		31		Sold the treasury shares purchased on February 28.
Nov.		30		Issued 120,000 new shares.
Dec.		31		Net income for 2018 is $495,000.
2019
Jan.		15		Declared and issued a 2-for-1 stock split.
Dec.		31		Net income for 2019 is $495,000.

Required:

1. Determine the 2018 EPS.
2. Determine the 2019 EPS.
3. At what amount will the 2018 EPS be presented in the 2019 comparative financial statements?

	Numerator / Denominator = Earnings per Share 1. / = 2. / = 3. / =

Answer 1

1.

Jan. 1	340,000
Feb. 28	(25,000) (30,000*10/12)
Oct. 31	5,000 (30,000*2/12)
Nov. 30	10,000 (120,000*1/12)
Weighted average shares outstanding	330,000

2018 EPS = Net income / Weighted average shares outstanding

= $495,000 / 330,000

= $1.5

2.

Under stock split shares are treated as if they have been outstanding and included at full amount for the current year.

Shares outstanding = (340,000 - 30,000 + 30,000 + 120,000) * 2

= 920,000

2019 EPS = Net income / Weighted average shares outstanding

= $495,000 / 920,000

= $0.54

3. 2018 EPS = $1.5