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Comparative Earnings per Share

Lucas Company reports net income of $5,125 for the year ended December 31, 2019, its first year of operations. On January 4, 2019, Lucas issued 9,000 shares of common stock. On August 2, 2019, it issued an additional 3,000 shares of stock, resulting in 12,000 shares outstanding at year-end.

During 2020, Lucas earned net income of $16,400. It issued 2,000 additional shares of stock on March 3, 2020, and declared and issued a 2-for-1 stock split on November 3, 2020, resulting in 28,000 shares outstanding at year-end.

During 2021, Lucas earned net income of $23,520. The only common stock transaction during 2021 was a 20% stock dividend issued on July 2, 2021.

If required, round your final answers to two decimal places.

Required:
3. Compute the 2019, 2020, and 2021 comparative basic earnings per share that would be disclosed in the 2021 annual report.
2021:   $  per share
2020:   $  per share
2019:   $  per share

Answer 1

First we need to find out weighted average number of common stock at the end of each year Parta: year 2019: Weighted average number of shares at the end of december 2019: [9,000 x 12/12 +3,000 x 5/12 ] = 10,250 shares Year 2020: Weighted average number of shares at the end of december 2020: [(9,000 + 3,000 ) x 2 x 12/12 ] + [ 3,000 x 2 x 10/12 ] = 24,000 + 5,000 = 29,000 shares Requirement 3: It is given in the question that stock dividend is issued on july2,2021 but there were no resources actually flown into entity. So, we need to assume that stock dividend is declared at the inception of the year. For comparatives it is assumed that dividend is declared at the inceptioneach comparative period. Therefore, weighted average number of common stock [year 2021] year Calculation Common stock 2021 29,000 x 1.2 34,800 2020 29,000 x 1.2 34,800 2019 10,250 x 2 x 1.2 24,600 Earnings $ 23,520 $ 16,400 $ 5,125 Basic earnings per share Basic earnings per share $23,520/34,800 16,400/34,800 $5,125 / 24,600 $ 0.68 $ 0.47 $ 0.21