Question

For the year ended December 31, 2021, Norstar Industries reported net income of $655,000.

At January 1, 2021, the company had 900,000 common shares outstanding.

The following changes in the number of shares occurred during 2021:

Apr. 30 Sold 60,000 shares in a public offering.
May 24 Declared and distributed a 5% stock dividend.
June 1 Issued 72,000 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, 2021. (Enter your answers in thousands. Do not round intermediate calculations. Round "EPS" answer to 2 decimal places.)

Answer 1

Norstar Industries' earnings per share (EPS) for the year ended December 31, 2021, is calculated by obtaining the weighted average number of shares outstanding and dividing the net income by this amount. The weighted average number of shares is found to be 1,010,000. The final EPS is $0.65 after rounding to two decimal places.

Step-by-step explanation:

To calculate Norstar Industries' earnings per share (EPS) for the year ended December 31, 2021, we must first find the weighted average number of common shares outstanding during the year. We calculate the weighted average by multiplying the number of shares outstanding by the fraction of the year they were outstanding.

1. Initial shares: 900,000 shares outstanding at the beginning of the year.
2. April 30: Sold 60,000 shares. For the remaining 8 months: 60,000 shares × (8/12) = 40,000 shares added.
3. May 24: 5% stock dividend on the original 900,000 shares + 60,000 new shares = 960,000 shares × 5% = 48,000 shares added. Because these shares were distributed on May 24, they were outstanding for approximately 7 months: 48,000 shares × (7/12) = 28,000 shares added.
4. June 1: Issued 72,000 shares for the remainder of the year: 72,000 shares × (7/12) = 42,000 shares added.

Weighted average number of common shares = Initial shares + April adjustment + May adjustment + June adjustment

Weighted average number of common shares = 900,000 + 40,000 + 28,000 + 42,000 = 1,010,000 shares

Finally, we calculate the EPS:

EPS = Net Income / Weighted Average Number of Shares

EPS = $655,000 / 1,010,000 = $0.6485 per share

After rounding to two decimal places, the EPS is $0.65 per share.

Answer 2

Earnings per share = $0.64

Step-by-step explanation:

To calculate the Earnings per share, we first need to compute weighted average number of shares:

Jan.1: 900,000 * (12/12) = 900,000 * 1.05 = 945,000

Apr.30: 60,000 * (8/12) = 40,000 * 1.05 = 42,000

Jun.1: 72,000 * (7/12) = 42,000

Weighted Average No. of Shares Outstanding = 1,029,000

Note: We multiplied by 1.05 factors on Jan.1 and Apr.30 to account for 5% declared and distribution of a stock dividend.

Earnings Per Share = Net Income

Weighted Average No.of Shares Outstanding

Earnings Per Share = 655,000

1,029,000

Earnings Per Share = $0.64