Question

2, Garner Group had 800 common shares and 600 $5 par, 8% preferred shares outstanding at January 1. During the year Garner had the following transactions: Maarc:ti 1 . June 30 October 31 Garner reissued (sold) 36 shares of treasury stock December 31 Garner's net income for the year was $2,000. Garner purchased 54 shares of treasury stock. Garner issued 50 shares of new common stock. Calculate Garner's earnings per share for the year.

Answer 1

Answer

• Earnings per share = Net Income available for common stockholders / Weighted average no. of common stock shares outstanding.
• Net Income for common stockholder = Net Income – Preferred stock dividend
  = 2000 – (600 shares x $ 5 par x 8%)
  = 2000 – 240
  = $ 1,760
• Weighted average no. of CS shares
  

	Shares	Cumulative shares outstanding	Period they remain outstanding	Weighted Average no. of shares outstanding
Beginning balance	800	800	1 jan - 28 Feb = 2 months	133.33	[800 x 2/12]
01-Mar	(54)	746	1 Mar - 30 June = 4 months	248.67	[746 x 4/12]
30-Jun	50	796	1 Jul - Oct 31 = 4 months	265.33	[796 x 4/12]
31-Oct	36	832	1 Nov - 31 Dec = 2 months	138.67	[832 x 2 /12]
Total no. of weighted average common stock shares outstanding				786.00

• Answer:

Earnings per share = $ 1,760 / 786 shares
= $ 2.24 per share