Question

For the year ended December 31, 2016, Norstar Industries reported net income of $655,000. At January 1, 2016, the company had 900,000 common shares outstanding. The following changes in the number of shares occurred during 2016: 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, 2016.

Answer 1

1.272 per share

Step-by-step explanation:

The computation of earnings per share is shown below:-

Weighted Average number of Common shares outstanding = outstanding common shares ÷ Net income

= 900,000 ÷ $707,810

= 1.272 per share

Where,

Net Income = Preferred Dividends ÷ Weighted Average number of Common shares outstanding

= $655,000 ÷ (1 + 0.05) + ( 60,000 × 8 months ÷ 12 months) × 1.05 + (72,000 × 7 months ÷ 12 months)

= $623,810 + 40,000 × 1.05 + 42,000

= $623,810 + 42,000 + 42,000

= 707,810