Question

Oriole Inc., a publicly traded company, had 210,000 common shares outstanding on December 31,2022. During 2023 , the company issued 7,500 shares on May 1 and retired 15,000 shares on October 31. For 2023, the company reported net income of $170,000 after a loss from discontinued operations of $63,750 (net of tax). Assume that Oriole issued a 3-for-1 stock split on January 31, 2024, and that the company's financial statements for the year ended December 31, 2023, were issued on February 15, 2024. Calculate earnings per share for 2023 as it should be reported to shareholders.

Answer 1

To calculate the earnings per share for Oriole Inc. for 2023, we find the weighted average number of shares, which is 212,500. We then divide the continuing operations net income of $233,750 by this number to get an EPS of $1.10, which adjusts to $0.3667 per share after the 3-for-1 stock split.

Step-by-step explanation:

To calculate the earnings per share (EPS) for Oriole Inc. for the year 2023, we first need to understand that EPS is a measure of the company's profitability on a per-share basis. It is calculated by dividing the net income by the weighted average number of shares outstanding during the period.

The company started with 210,000 shares at the beginning of the year. On May 1, 7,500 shares were issued, increasing the number of shares to 217,500. These shares were outstanding for 8 months (May to December). On October 31, the company retired 15,000 shares, leaving 202,500 shares for the last two months of the year (November to December).

To calculate the weighted average number of shares, we use the following formula:

Weighted average shares = (Shares for Period 1 × Number of Months) + (Shares for Period 2 × Number of Months) + ... , all divided by 12.

Applying the calculation:

Weighted average shares = (210,000 × 4 months) + (217,500 × 6 months) + (202,500 × 2 months) / 12

Weighted average shares = (840,000) + (1,305,000) + (405,000) / 12 = 2,550,000 / 12 = 212,500 shares

The net income reported was $170,000 after a loss from discontinued operations. Thus, the continuing operations net income was $170,000 + $63,750 = $233,750.

To find the EPS:

EPS = Continuing Operations Net Income / Weighted Average Shares

EPS = $233,750 / 212,500

EPS = $1.10 per share

Finally, since the financial statements were issued after the stock split on January 31, 2024, we need to adjust the EPS for the 3-for-1 stock split. This means that each existing share is now three shares, implying the EPS needs to be divided by three.

Adjusted EPS = $1.10 / 3

Adjusted EPS = $0.3667 per share

This adjusted EPS is the amount to be reported to the shareholders.