Exercise 19-13 EPS; treasury stock; new shares; stock dividends; two years [LO19

Question

Exercise 19-13 EPS; treasury stock; new shares; stock dividends; two years [LO19-5, 19-6]

The Alford Group had 240,000 shares of common stock outstanding at January 1, 2018. The following activities affected common shares during the year. There are no potential common shares outstanding.
  

Required:

1. Determine the 2018 EPS.
2. Determine the 2019 EPS.
3. At what amount will the 2018 EPS be presented in the 2019 comparative financial statements?

(For all requirements, Enter your answers in thousands.)

2018 Feb. 28 Purchased 30,000 shares of treasury stock. Oct. 31 Sold the treasury shares purchased on February 28. Nov. 30 Issued 120,000 new shares. Dec. 31 Net income for 2018 is $1,495,000. 2019 Jan. 15 Declared and issued a 2-for-1 stock split. Dec. 31 Net income for 2019 is $1,495,000.

Explanation / Answer

1. 2018 :

Weighted average number of shares = 240 - 30 ( 10/12) + 30 ( 2/12) + 120 ( 1/12) = 230

EPS = Net Income / Weighted Average Outstanding Shares = $ 1,495 / 230 = $ 6.5

2. 2019:

After the stock split, the number of shares = Number of shares at Jan 1, 2019 x 2 = ( 240 + 30 - 30 + 120) x 2 = 720 shares.

EPS for 2019 = $ 1,495 / 720 shares = $ 2.08

3. 2018 EPS to be presented in the 2019 comparative financial statements:

Weighted average number of shares of 2018 now adjusted for stock split = 230 x 2 = 460.

EPS = $ 1,495 / 460 = $ 3.25

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