Question

For the year ended December 31, 2018, Norstar Industries reported net income of $905,000. At January 1, 2018, the company had 720,000 common shares outstanding. The following changes in the number of shares occurred during 2018:Apr. 30 Sold 25,000 shares in a public offering.May 24 Declared and distributed a 5% stock dividend.June 1 Issued 18,000 shares as part of the consideration for the purchase of assets from a subsidiary.Required:Compute Norstar's earnings per share for the year ended December 31, 2018

Answer 1

Norstar's earnings per share for the year ended December 31, 2018 is $1.15

Step-by-step explanation:

For computing the earning per share, we have to use the formula which is shown below:

Earning per share = Net income ÷ weightage of average outstanding shares

where,

Net income is $905,000

And, the weightage of average outstanding shares equals to

= Jan 1 2018 shares × stock dividend + April 30 shares × stock dividend × number of months ÷ total number of months in a year + June 1 shares × number of months ÷ total number of months in a year

where,

Dividend would be = 100 + rate = 100 + 0.05 = 1.05

The months from April 30 to December 31 is 8 months

The months from June 1 to December 31 is 7 months

= 720,000 × 1.05 + 25,000 × 1.05 × 8 ÷ 12 + 18,000 × 7 ÷ 12

= 756,000 + 17,500 + 10,500

= 784,000 shares

Now put these values to the above formula

So, the earning per share would be equal to

= $905,000 ÷ 784,000 shares

= $1.15 per share.

Hence, Norstar's earnings per share for the year ended December 31, 2018 is $1.15