_____4. Evie Corp, has the following Stockholders’ Equity account balances and a
ID: 2533735 • Letter: #
Question
_____4. Evie Corp, has the following Stockholders’ Equity account balances and activity for Year 2.
Net income
$8,500,000
Retained earnings
$5,955,000
Preferred stock shares outstanding
1,000
Common stock shares outstanding at January 1, Yr 2
3,750,000
Additional Common shares issued at July 1, Yr 2
10,000
2-for-1 stock split at December 31, Yr 2
Preferred Dividends
$15,000
Common Dividends
$75,000
Year 1 EPS
$2.20
Earnings per share = 8500000/ 3,755,000* = 2.26
* Compute Denominator: Weighted average common shares outstanding
Date
Shares
Portion of year
Weighted Average Shares
January 1, Y2
3,750,000
12
3,750,000
July 1, Y2
10,000
6
5,000
Weighted Average December 31 before split
Stock split 2-for-1
*Total Weighted Average, 12/31/Y2
Note: Year 1 restated
$2.20 / 2 =_____
Net income
$8,500,000
Retained earnings
$5,955,000
Preferred stock shares outstanding
1,000
Common stock shares outstanding at January 1, Yr 2
3,750,000
Additional Common shares issued at July 1, Yr 2
10,000
2-for-1 stock split at December 31, Yr 2
Preferred Dividends
$15,000
Common Dividends
$75,000
Year 1 EPS
$2.20
Explanation / Answer
Earnings Per Share = $1.13 per share
Earnings Per Share = Net Income for common stock holders/ Weighted Average Shares Outstanding
Net Income for common stock holders = Net Income – Preferred Dividend
= $85,00,000 - $15,000
= $ 84,85,000
Weighted Average Shares Outstanding
Date
Shares
Portion of year
Weighted Average Shares
January 1, Y2
37,50,000
12 Months
37,50,000
July 1, Y2
10,000
6 Months
5,000
Weighted Average December 31 before split
37,55,000
Stock split 2-for-1
37,55,000
12 Months
37,55,000
*Total Weighted Average, 12/31/Y2
75,10,000
Earnings Per Share = $ 84,85,000 / 75,10,000 Shares
= $1.13 per share (Rounded to two decimal)
Date
Shares
Portion of year
Weighted Average Shares
January 1, Y2
37,50,000
12 Months
37,50,000
July 1, Y2
10,000
6 Months
5,000
Weighted Average December 31 before split
37,55,000
Stock split 2-for-1
37,55,000
12 Months
37,55,000
*Total Weighted Average, 12/31/Y2
75,10,000
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