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Chapter 16: Question 16 (page 874)

At December 31, 2017, Reid Company had 600,000 shares of common stock issued and outstanding, 400,000 of which had been issued and outstanding throughout the year and 200,000 of which were issued on October 1, 2017. Net income for 2017 was \(2,000,000, and dividends declared on preferred stock were \)400,000. Compute Reid’s earnings per common share. (Round to the nearest penny.)

Short Answer

Expert verified

Earnings per common share of Reid Company is $3.56.

Step by step solution

01

The following information is given in the question

Net income (2017): $2,000,000

Preferred Dividend: $400,000

Issued and outstanding Shares: $400,000

October 1 to December 31: $50,000 (200,000 X 3/12)

Weighted Average Shares Outstanding: $450,000 ($ 400,000+ $ 50,000)

02

Computation of earning per share

EarningPerShare=NetIncome-PreferredDividendsWeightedAverageSharesOutstanding=2000000-400000450000=$3·56

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Most popular questions from this chapter

Explain how the conversion feature of convertible debt has a value (a) to the issuer and (b) to the purchaser.

Petrenko Corporation has outstanding 2,000 \(1,000 bonds, each convertible into 50 shares of \)10 par value common stock. The bonds are converted on December 31, 2017, when the unamortized discount is \(30,000 and the market price of the stock is \)21 per share. Record the conversion using the book value approach.

(EPS: Simple Capital Structure) At January 1, 2017, Langley Company’s outstanding shares included the following.

280,000 shares of \(50 par value, 7% cumulative preferred stock

900,000 shares of \)1 par value common stock

Net income for 2017 was \(2,530,000. No cash dividends were declared or paid during 2017. On February 15, 2018, however, all preferred dividends in arrears were paid, together with a 5% stock dividend on common shares. There were no dividends in arrears prior to 2017.

On April 1, 2017, 450,000 shares of common stock were sold for \)10 per share, and on October 1, 2017, 110,000 shares of common stock were purchased for $20 per share and held as treasury stock.

Instructions

Compute earnings per share for 2017. Assume that financial statements for 2017 were issued in March 2018.

All of the following are key similarities between GAAP and IFRS with respect to accounting for dilutive securities and EPS except:

(a) the model for recognizing stock-based compensation.

(b) the calculation of basic and diluted EPS.

(c) the accounting for convertible debt.

(d) the accounting for modifications of share options, when the value increases.

Ferraro, Inc. established a stock-appreciation rights (SARs) program on January 1, 2017, which entitles executives to receive cash at the date of exercise for the difference between the market price of the stock and the pre-established price of \(20 on 5,000 SARs. The required service period is 2 years. The fair value of the SARs are determined to be \)4 on December 31,2017, and $9 on December 31, 2018. Compute Ferraro’s compensation expense for 2017 and 2018.
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