Question

T. Lipson Industries sold merchandise to customers for a total of $2,240,000 last year. The company also borrowed $400,000 from the bank, which was due (must be paid back) in 2013. Salaries expenses were $1,200,000, advertising expenses were $400,000, and all other expenses (including interest expense on the loan) totaled $380,000. The company started the year with 80,000 shares of stock outstanding. The company sold 20,000 shares to an investor on June 30 for $8 per share. Find the earnings (or loss) per share for the year

Answer 1

The earnings per share of T. Lipson Industries for the year is $2.89 per share.

Step-by-step explanation:

Earnings (or loss) per share refers to the net profit / (loss) of a company in a particular year divided by the by the weighted average number of shares outstanding during the same year.

The earnings (or loss) per share of T. Lipson Industries for the year can be determined as follows:

Calculation of net profit (or loss)

Net Profit (or loss) = Sales - Salaries expenses - Advertising expenses - other expenses (including interest expense on the loan) = $2,240,000 - $1,200,000 - $400,000 - $380,000 = $260,000

Calculation of weighted average number of shares outstanding during the year

Weighted number of shares the company started the year with = 80,000 * 12 months / 12 months = 80,000 * 1 = 80,000 shares

Weighted number of shares issued on June 30 = 20,000 * 6 months / 12 months = 20,000 * 0.5 = 10,000 shares

Weighted average share number of shares outstanding during the year = Weighted number of shares the company started the year with + Weighted number of shares issued on June 30 = 80,000 + 10,000 = 90,000 shares

Calculation of earnings per share for the year

Earnings per share for the year = Net profit / Weighted average share number of shares outstanding during the year = $260,000 / 90,000 = $2.89 per share

Therefore, the earnings per share of the company for the year is $2.89 per share.