Question

I understand a & b, however I don't understand how to get c.

For the year ended December 31, 2018, Finco Inc. reported earnings per share of $9.90. Answer the following questions: During 2019, the company had a 2-for-1 stock split.

a. Calculate the 2018 earnings per share that will be reported in Finco's 2019 annual report for comparative purposes. During 2020, Finco had an additional 2-for-1 stock split.

b. Calculate the 2018 earnings per share that will be reported in Finco's 2020 annual report for comparative purposes. Assume that Finco had issued a 13% stock dividend in 2019 and did not have a stock split.

c. Calculate the 2018 earnings per share that will be reported in Finco's 2019 annual report for comparative purposes. (For all requirements, round your answer to 2 decimal places.)

Question ? Earnings per share for c?

Answer 1

Solution:

Question:C  Calculate the 2018 earnings per share that will be reported in Finco's 2019 annual report for comparative purposes.

Answer:Earnings per share = Original Earning Per Share / Stock Split ratio = $ 9.9 / 2 = $4.95

1) It is given in the question that in 2019 there is stock split of 2:1, which means after stock split every share will become two shares.

2) It means, as number of shares increases then earnings per share decrease. So, we have to divided original earnings per share by 2.

3) Only question C has asked by the student to answer.

Question b. Calculate the 2018 earnings per share that will be reported in Finco's 2020 annual report for comparative purposes. Assume that Finco had issued a 13% stock dividend in 2019 and did not have a stock split.

Answer : :Earnings per share = Original Earning Per Share / [ 1 + Stock Dividend Issued]

Earnings per share = $ 9.9 / [1+ 13%] = $9.9 / 1.13 = $ 8.76

1) With Stock Dividend, Number of shares will increase by 13% which effect earnings per share

2) In total no. of shares will be 1 + 13% = 1.13 Shares but there is no growth in earnings per share.