Question

(Show work and calculations)

On January 1, 2018, Indigo Corp. had 502,000 shares of common stock outstanding. During 2018, it had the following transactions that affected the Common Stock account.

February 1		Issued 125,000 shares
March 1		Issued a 10% stock dividend
May 1		Acquired 98,000 shares of treasury stock
June 1		Issued a 3-for-1 stock split
October 1		Reissued 58,000 shares of treasury stock

1.Determine the weighted-average number of shares outstanding as of December 31, 2018.

2. (a.) Assume that Indigo Corp. earned net income of $3,605,000 during 2018. In addition, it had 104,000 shares of 9%, $100 par nonconvertible, noncumulative preferred stock outstanding for the entire year. Because of liquidity considerations, however, the company did not declare and pay a preferred dividend in 2018. Compute earnings per share for 2018, using the weighted-average number of shares determined in part

(b)Assume the same facts as in part (b), except that the preferred stock was cumulative. Compute earnings per share for 2018.

3. Assume the same facts as in part (b), except that net income included a loss from discontinued operations of $449,000 (net of tax). Compute earnings per share for 2018.

Answer 1

1	Determination of the weighted-average number of shares outstanding as of December 31, 2018.
	Event	Date	Share	Stock Dividend Reinstatement	Stock Split reinstatement	After reinstatement	No of Month/	12 months	weighted shares
	Beg	Jan 1 to Feb 1	502000	1.1	3	1656600	1	12	138050
	Issue Share	Feb 1 to Mar 1	627000	1.1	3	2069100	1	12	172425
	Stock Dividend	Mar 1 to May 1	689700		3	2069100	2	12	344850
	Reacquired shares	May 1 to Jun1	591700		3	1775100	1	12	147925
	Stock Split	Jun 1 to Oct 1	1775100				4	12	591700
	Reissued shares	Oct 1 to Dec 31	1833100				3	12	470775
	Weighted Average No of Shares O/S								1865725
2 a	Earnings per share	=	(Net Income -Preferred Stock Dividends)/Weighted Average number of shares
		=	($3605000-0)/1865725
		=	$1.93
		Note	Since the company does not declare and pay preference dividend in 2018
b	Earnings per share	=	(Net Income -Preferred Stock Dividends)/Weighted Average number of shares
		=	($3605000-$10400000*9%)/1865725
		=	($3605000-$936000)/1865725
		=	$1.43
3	Computation of EPS when the net income includes a loss from discontinued operations
	Net Income	=	$3,605,000
	Add Loss from discontinued operations net of tax	=	$449,000
	Income from continuing Operations	=	$4,054,000
	Calculation of EPS
	Income from Continuing Operations	=	$4054000/1865725
		=	$2.17
	Loss from discontinuing operations	=	$449000/1865725
			($0.24)
	Net Income	=	$1.93
	or	=	$3605000/1865725
		=	$1.93