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Carpets R Us had earnings after taxes of $800,000 in the year 2014 with 200,000 shares of stock...

Question:

Carpets R Us had earnings after taxes of $800,000 in the year 2014 with 200,000 shares of stock outstanding. On January 1, 2015, the firm issued 50,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnings after taxes increased by 30 percent.

a. Compute earnings per share for the year 2014.

b. Compute earnings per share for the year 2015.

Earnings Per Share

EPS is the ratio of after tax income to number of shares outstanding.It is a measure of firms profitability which shows how much of company's profit is attributable to single share. Higher thEPS better is the profitability of the company.

Answer and Explanation:

(a) Earnings Per share for the year 2014

{eq}\begin{align*} Earning~ Per ~Share&=\displaystyle\frac{Net ~Income}{End-Of-Period~common~share~outstanding}\\ &=\displaystyle\frac{800,000}{200,000}\\ &=4 \end{align*} {/eq}

Thus, earning per share for the year 2014 is $4

(b) Earning per share for the year 2015

{eq}\\ {/eq}

2015 Net income = $800,000+ 30% increase

=$800,000+($800,000*30%)

=$1,040,000

2015 end of the year shares outstanding = beginning shares outstanding+new shared issued in 2015

=200,000+50,000

=250,000

{eq}\begin{align*} Earning~ Per ~Share&=\displaystyle\frac{Net ~Income}{End-Of-Period~common~share~outstanding}\\ &=\displaystyle\frac{1,040,000}{250,000}\\ &=4.16 \end{align*} {/eq}

Thus, earning per share for the year 2015 is $4.16


Learn more about this topic:

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How to Calculate Earnings Per Share: Definition & Formula

from Introduction to Business: Homework Help Resource

Chapter 24 / Lesson 14
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