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At December 31, 2017, the balance sheet of Tipton Corporation included 5 million common shares and 2 million nonconvertible preferred shares. On July 1, 2018, Tipton issued a 2 for 1 stock split on its common shares and paid $4 million cash dividends on the preferred stock. Net income for the year ended December 31, 2018, was $28 million. Tiptons 2018 EPS should be:

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Answer #1

Solution :

EPS = (Net profit - dividend on preferred shares)÷ weighted average no. Of common shares

EPS =( $28 million - $4 million ) ÷ 7.5 million

= $3.20 per share

Working :

weighted average no. Of common shares

= 5 million x 6/12 + 10 million x 6/12

= 7.5 million shares

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