Question

Richetti Inc.’s shareholders’ equity accounts were as follows at the beginning of the current fiscal year, August 1, 2017:

$1 noncumulative preferred shares (103,000 shares issued)		$2,575,000
Common shares (337,000 shares issued)		3,370,000
Retained earnings		2,420,000
Total shareholders’ equity		$8,365,000

During the year, the following selected transactions occurred:

Oct.	1		Reacquired 22,800 common shares for $19 per share.
Dec.	1		Issued 54,600 common shares for $24 per share.
Feb.	1		Issued 9,600 common shares for $25 per share.
June	20		Declared the annual preferred cash dividend to shareholders of record on July 10, payable on July 31.
July	31		Net income for the year ended July 31, 2018, was $1,212,000.

Incorrect answer iconYour answer is incorrect.

Calculate the weighted average number of common shares for the year.

Weighted Average Number of Shares

eTextbook and Media

New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is incorrect.

Calculate the basic earnings per share. (Round answer to 2 decimal place e.g. 5.25.)

Basic Earnings per Share

$

eTextbook and Media

Incorrect answer iconYour answer is incorrect.

Would your answer to the basic earnings per share calculated above change if the preferred share dividend had not been declared on June 20? (Round answer to 2 decimal place e.g. 5.25.)

Basic Earnings per Share

Answer 1

Weighted average number of shares Months No of common outstanding shares (A) (B) 1-Aug-17 337,000 Date (A*B) Multiplier Remarks 674,000 Treasury stock means shares issued earlier but called back and hence these are issued shares but not outstanding, therefore these should not be considered in the EPS calculation(means should be deducted from the original number of shares issued). Amount calculated as 337,000 less 628,400 22,800 737,600 Shares issued, the number is calculated as 314,200+54,600 2,270,400 Shares issued, the number is calculated as 368,800 +9,600 4,310,400 1-Oct-17 1-Dec-171 1-Feb-18 314,200 368,800 378,400 2 Weighted average number of shares = 4,310,400 / 12 =359,200 shares

Basic earning per shares (EPS) EPS = Net income available for common shareholders Weighted average number of shares Net income Less: Preference dividend Net income available for common shareholders $ 1,212,000 $ (103,000) (103,000 shares @ $1) $ 1,109,000 EPS = =1,109,000 359,200 Basic EPS = $ 3.09

Basic EPS if Preference dividend not declared on 20th Jun Net income $ 1,212,000 For non-cumulative preference shares, the dividends should only be deducted if the dividend has been declared Less: Preference dividend Net income available for common shareholders $ 1,212,000 EPS = =1,212,000 359,200 Basic EPS = $ 3.37