Question

For the year ended December 31, 2021, Norstar Industries reported a net income of $920,000. On January 1, 2021, the company had 780,000 common shares outstanding. The following changes in the number of shares occurred during 2021: Apr. 30 Sold 40,000 shares in a public offering. May 24 Declared and distributed a 5% stock dividend. June 1 Issued 36,000 shares as part of the consideration for the purchase of assets from a subsidiary. Compute Norstar's earnings per share for the year ended December 31, 2021.

Answer 1

$1.06 per share

Step-by-step explanation:

The computation of the earning per share is shown below:

Earning per share = Net income reported ÷ Weighted number of outstanding shares

where,

Net income reported is $920,000

And, the weighted number of outstanding shares is

= 780,000 shares + (780,000 shares × 5%) + (40,000 shares × 8 ÷ 12) + (40,000 shares × 8 ÷ 12 × 5%) + (36,000 shares × 7 ÷ 12)

= 780,000 shares + 39,000 shares + $26,667 + $1,333 + 21,000 shares

= 868,000 shares

So, the earning per share is

= $920,000 ÷ 868,000 shares

= $1.06 per share

We simply applied the above formula