Question

Exercise 16-18 Indigo Inc. presented the following data. Net income$2,410,000 Preferred stock: 52,000 shares outstanding, $100 par, 8% cumulative, not convertible5,200,000 Common stock: Shares outstanding 1/1729,600 Issued for cash, 5/1296,400 Acquired treasury stock for cash, 8/1152,400 2-for-1 stock split, 10/1 Compute earnings per share.

Answer 1

EPS = $11.74 per share

Step-by-step explanation:

earnings per share (EPS) = (net income - preferred dividends) / weighted average shares outstanding

net income = $2,410,000

preferred dividends = 52,000 x $100 x 8% = $416,000

weighted average shares outstanding:

• beginning common stocks (29,600 x 257/274) x 2 = 55,527 + (55,527 x 91/365) = 69,370.72
• new stocks issued (96,400 x 142/274) x 2 = 99,918.25 + (99,918.25 x 91/365) = 124,819.38
• treasury stocks (-52,400 x 51/274) x 2 = -19,506.57 + (-19,506.57 x 91/365) = -24,369.85
• total = 169,820.25 ≈ 169,820 weighted stocks

EPS = ($2,410,000 - $416,000) / 169,820 stocks = $11.74

Since the dates are a little confusing, I assumed 1/17 for beginning common stocks, 5/12 for issuance of new stocks, 8/11 for acquiring treasury stocks, and 10/1 for stock split. From January 1 to October 1, there are 274 days on a regular 365 day calendar year.