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)|
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
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Learn more about this topic:
from Introduction to Business: Homework Help ResourceChapter 24 / Lesson 14