Homework Answers
Solution:
A. The Net Income for 2019 to be reported in 2020 annual report will be same i.e. $ 930,200. The net income will not change with respect to stocks split. The total earnings from shares will remain same for every shareholder.
Example: Suppose Shareholder A has 1 share in 2019. His earnings will be (930200/217300)*1 = $ 4.28
Now after shares split in ratio of 4 for 1, average no of shares outstanding will be 217300*4 = 869200
Earnings of Shareholder now = (930200/869200)*4 = $ 4.28
B. Earning per share for 2019 to be reported in 2019 annual report will be:
EPS = Net Income for the period / Average no of shares outstanding
EPS for 2019 to be reported in 2019 annual report = 930200/217300 = $ 4.28
C. Earning per share for 2019 to be reported in 2020 annual report for comparative purpose will be:
New average outstanding shares = 217300*4 = 869200 (as shares are split in 4 for every 1 outstanding)
Net income will remain same as 930200
EPS = Net Income for the period / Average no of shares outstanding
EPS for 2020 to be reported in 2020 annual report for comparative purpose= 930200/869200 = $ 1.07
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