Exercise 16-16 (Part Level Submission) On January 1, 2018, Sunland Corp. had 461
ID: 2515276 • Letter: E
Question
Exercise 16-16 (Part Level Submission)
On January 1, 2018, Sunland Corp. had 461,000 shares of common stock outstanding. During 2018, it had the following transactions that affected the Common Stock account.
(A) Assume that Sunland Corp. earned net income of $3,325,000 during 2018. In addition, it had 102,000 shares of 10%, $100 par nonconvertible, noncumulative preferred stock outstanding for the entire year. Because of liquidity considerations, however, the company did not declare and pay a preferred dividend in 2018. Compute earnings per share for 2018, using the weighted-average number of shares = 1,703,650
(B) Assume the same facts as in part (A), except that the preferred stock was cumulative. Compute earnings per share for 2018.
Exercise 16-16 (Part Level Submission)
On January 1, 2018, Sunland Corp. had 461,000 shares of common stock outstanding. During 2018, it had the following transactions that affected the Common Stock account.
February 1 Issued 124,000 shares March 1 Issued a 10% stock dividend May 1 Acquired 104,000 shares of treasury stock June 1 Issued a 3-for-1 stock split October 1 Reissued 61,000 shares of treasury stock(A) Assume that Sunland Corp. earned net income of $3,325,000 during 2018. In addition, it had 102,000 shares of 10%, $100 par nonconvertible, noncumulative preferred stock outstanding for the entire year. Because of liquidity considerations, however, the company did not declare and pay a preferred dividend in 2018. Compute earnings per share for 2018, using the weighted-average number of shares = 1,703,650
(B) Assume the same facts as in part (A), except that the preferred stock was cumulative. Compute earnings per share for 2018.
Explanation / Answer
1. A) Earnings Per share (EPS) = (Net Income – Preference Stock Dividend) / Weighted Average Number of Shares
Preference Stock Dividend = 102,000 shares of 10% = 10200
EPS = (3,325,000 – 10,200) / 1,703,650 = 1.9457 = 1.95
1.B) Earnings Per share = (Net Income – Preference Stock Dividend) / Weighted Average Number of Shares
Cumulative Preference Dividend = 10% on par value 100 = 10 per share
Cumulative dividend = 10,200*10 = 102,000
EPS = (3,325,000 – 102,000) / 1,703,650 = 1.8918 = 1.89
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