The Alford Group had 200,000 shares of common stock outstanding at January 1, 20

Question

The Alford Group had 200,000 shares of common stock outstanding at January 1, 2016. The following activities affected common shares during the year. There are no potential common shares outstanding. 2016 Feb. 28 Purchased 18,000 shares of treasury stock. Oct. 31 Sold the treasury shares purchased on February 28. Nov. 30 Issued 72,000 new shares. Dec. 31 Net income for 2016 is $1,649,000. 2017 Jan. 15 Declared and issued a 2-for-1 stock split. Dec. 31 Net income for 2017 is $1,649,000. Required: 1. Determine the 2016 EPS. (Enter your answers in thousands.) Numerator / Denominator l = Earnings per Share

Explanation / Answer

1)

Weighted average Number of shares outstanding

=200000-(18000*10/12) + (18000)*(2/12) + (72000*1/12)

= 20000-15000+3000+6000

=194000

Net Income = 1,649,000

EPS = Net Income / Number of shares outstanding

EPS = 1,649,000 / 194000

EPS =$8.5

2)

Calculate EPS for the year 2017 as follows

Number of shares outstanding = 200,000 -18,000+18000+72000

Number of shares outstanding = 272000 shares

Given Declared and issued stock split = 1 for 2

Number of shares outstanding = 272000*2

=544,000 Shares

Given, Net income = 1,649,000

EPS = Net income / number of shares outstanding

EPS = 1649000/544000

EPS = 3.03125

3)

Additional shares = 272000

Weighted number of shares = 194000

EPS = 1649000/ (194000+272000)

EPS = 1649000/466000

EPS= 3.538 or 3.54

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