On January 1, 2018, Buffalo Corp. had 488,000 shares of common stock outstanding

Question

On January 1, 2018, Buffalo Corp. had 488,000 shares of common stock outstanding. During 2018, it had the following transactions that affected the Common Stock account. February 1 Issued 115,000 shares March 1 Issued a 10% stock dividend May 1 Acquired 96,000 shares of treasury stock June 1 Issued a 3-for-1 stock split October 1 Reissued 61,000 shares of treasury stock

a.Determine the weighted-average number of shares outstanding as of December 31, 2018.

b.Assume that Buffalo Corp. earned net income of $3,330,000 during 2018. In addition, it had 105,000 shares of 9%, $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 determined in part (a).

c.Assume the same facts as in part (b), except that the preferred stock was cumulative. Compute earnings per share for 2018.

Explanation / Answer

a

Computation of weighted average number of shares outstanding as dec 2018

Particulars

Dates

Outstanding shares

working

Stock dividend restatement

Stock split restatement

Number of months

12 months

Weighted shares

Beginning Balance

Jan1 - Feb 1

488000

Given

1.1

3

1

12

134200

Issued shares

Feb1 - Mar 1

603000

488000+115000

1.1

3

1

12

165825

stock dividend

Mar1 - May 1

663300

603000*1.1

3

2

12

331650

Reacquired shares

May 1 - June 1

567300

663300-96000

3

1

12

141825

Stock split

June 1 - oct 1

1701900

567300*3

4

12

567300

Reissued shares

Oct 1 - Dec 31

1762900

1701900+61000

3

12

440725

Weighted number of shares outstanding

1781525

b

Basic Earnings per share:

[Netincome - Preferred dividends]/Weighted average number of shares outstanding

$3330000/1781525

1.869185108

$1.87

c

Assume the same facts as in part (b) except preferred stock is cummulative

Basic Earnings per share:

[Netincome - Preferred dividends]/Weighted average number of shares outstanding

[$3330000-$945000]/1781525

1.338741

$1.34

a

Computation of weighted average number of shares outstanding as dec 2018

Particulars

Dates

Outstanding shares

working

Stock dividend restatement

Stock split restatement

Number of months

12 months

Weighted shares

Beginning Balance

Jan1 - Feb 1

488000

Given

1.1

3

1

12

134200

Issued shares

Feb1 - Mar 1

603000

488000+115000

1.1

3

1

12

165825

stock dividend

Mar1 - May 1

663300

603000*1.1

3

2

12

331650

Reacquired shares

May 1 - June 1

567300

663300-96000

3

1

12

141825

Stock split

June 1 - oct 1

1701900

567300*3

4

12

567300

Reissued shares

Oct 1 - Dec 31

1762900

1701900+61000

3

12

440725

Weighted number of shares outstanding

1781525

b

Basic Earnings per share:

[Netincome - Preferred dividends]/Weighted average number of shares outstanding

$3330000/1781525

1.869185108

$1.87

c

Assume the same facts as in part (b) except preferred stock is cummulative

Basic Earnings per share:

[Netincome - Preferred dividends]/Weighted average number of shares outstanding

[$3330000-$945000]/1781525

1.338741

$1.34

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