The 2015 balance sheet for Guthrie Corporation revealed the following informatio
ID: 2765640 • Letter: T
Question
The 2015 balance sheet for Guthrie Corporation revealed the following information:
Common stock, $10 par, 50,000 shares issued and outstanding
Preferred stock, $100 par, 6%, cumulative stock, 1,000 shares issued and outstanding
During 2016, Guthrie reported net income of $225,000 and engaged in the following stock transactions:
Required:
1. Determine if Guthrie has a simple or complex capital structure.
Simple capital
2. Calculate the weighted average number of shares of stock that should be used to calculate EPS for the 2016 income statement. Round your answer to the nearest whole number.
shares
3. Compute the basic EPS that would be disclosed by Guthrie. Round your answer to 2 decimal places.
Basic EPS $
Explanation / Answer
1.
Determine if Guthrie has a simple or complex capital structure:
Details
Amount
Capital structure
Common stock 50,000 @$10
$ 500,000
Add: Issue of common stock 10,000 @10
$ 100,000
Less: Required shares 2,000 @10
$ 20,000
Add: Resold shares 1,000 @10
$ 10,000
Total common stock value
$ 590,000
85.51
Preferred stock 1,000 @100
$ 100,000
14.49
Total capital structure
$ 690,000
100.00
2.
Calculate the weighted average number of shares of stock that should be used to calculate EPS for the 2016 income statement:
Details
No. of shares
Common stock outstanding
50000
Add: Issue of common stock on Mar 1
10,000
Less: Reacquired shares on Apr 1
2000
Add: Resold shares on Aug 1
1000
Number of shares available of common stock
59,000
3.
Compute the basic EPS that would be disclosed by Guthrie:
EPS = Net income / No. of shares
= ($225,000 *50%) / 59,000
= $1.9068
Note: Assume net income is after deducting the issue of dividend of Preferred stock.
Details
Amount
Capital structure
Common stock 50,000 @$10
$ 500,000
Add: Issue of common stock 10,000 @10
$ 100,000
Less: Required shares 2,000 @10
$ 20,000
Add: Resold shares 1,000 @10
$ 10,000
Total common stock value
$ 590,000
85.51
Preferred stock 1,000 @100
$ 100,000
14.49
Total capital structure
$ 690,000
100.00
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