Issued 60,000 common shares for $18 per share Purchased 20,000 shares of its com

Question

Issued 60,000 common shares for $18 per share Purchased 20,000 shares of its common stock to hold in treasury for $12 per share. Issued a 10% stock dividend Sold 5.000 of the treasury shores for $15 per share If has net income of $500,000. calculate the basic EPS lor 2014. Calculate the diluted EPS for 2014. Prepare the journal entry for the purchase of common shares on Aug 31. Prepare the journal entry for the reissuance of treasury shares on Dcc 1. Explain why are dividends not included on the income statement?

Explanation / Answer

1. Total number of shares of common stock outstanding = 120,000(Beginning balance) + 20,000 (Issuance)+ 60,000( Issuance) - 20,000 ( Treasury stock) +18,000 ( Stock dividend) + 5,000( Reissuance of treasury stock) = 203,000

If Easton has net income of $ 500,000, basic EPS = $ (500,000 - 6,000) / (203,000/ 2)= $ 4.87

2. Diluted EPS for 2014 = Net income / (Total number of shares of common stock outstanding + Potential shares of common stock) = $ 500,000 / (203,000 + 20,000)/2= $ 4.48

3.

4.

5. Dividends are not a charge against income, as expenses are, but dividends are appropriation or distribution of profits among the stockholders of the company.

Revenues - Expenses = Net Income

Net Income - Dividends = Retained earnings

Date Account Titles Debit Credit $ $ August 31 Treasury stock 240,000 Cash 240,000

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