Liberty Ventures Inc. reported $209,840 profit in 2017 and declared preferred dividends of...

Question:

Liberty Ventures Inc. reported $209,840 profit in 2017 and declared preferred dividends of $34,400. The following changes in common shares outstanding occurred during the year:

Jan 1. 60,000 common shares were outstanding

June 30. Sold 20,000 common shares.

Sept 1. Declared and issued a 20% common share dividend

Nov 2. Sold 12,000 common shares.

Calculate the weighted-average number of common shares outstanding during the year and earnings per share. (Round EPS calculations to two decimal places)

Common Stock: Limited Liability:

Common stockholders have limited liability to the company because their worst possible loss is only the money they have invested. Creditors will have no recourse to require common stockholders to pay company's debts

Answer and Explanation:

Determine the weighted-average number of shares outstanding

Weighted Average Number of Shares
January 1 60,000 shares x 120% 72,000 shares
June 30 20,000 shares x 120% x ( 6 / 12) (12,000 shares)
November 2 12,000 shares x (2 / 12) (2,000 shares)
Total 58,000 shares

When the company issues a stock dividend or stock split, it is treated retrospectively.

The shares are multiplied by portion of the reporting period that they are covered.


To get the earnings per share, divide the net income after preferred dividends with the weighted average outstanding shares

Earnings per Share = (Net Income - Preferred Dividends) / Weighted Average Outstanding Shares

Earnings per Share = ($209,840 - $34,400) / 58,000 shares

Earnings per Share = $175,440 / 58,000 shares

Earnings per Share = $3.02


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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