Question

Riverbed Inc. presented the following data.

Net income		$2,670,000
Preferred stock: 46,000 shares outstanding, $100 par, 8% cumulative, not convertible		4,600,000
Common stock: Shares outstanding 1/1		789,600
Issued for cash, 5/1		307,200
Acquired treasury stock for cash, 8/1		136,800
2-for-1 stock split, 10/1

Compute earnings per share. (Round answer to 2 decimal places, e.g. $2.55.)

Earnings per share

$enter earnings per share rounded to 2 decimal places

Answer 1

Stock dividends, Stock splits or Stock subscriptions (retroactively adjusted) - Shares are treated as if they had always been outstanding and included at full amount for current year.

1/1	Shares outstanding	789,600
5/1	Shares issued	204,800 (307,200*8/12)
8/1	Treasury stock acquired	(57,000) (136,800*5/12)
10/1	Stock spilt	1,874,800 [(789,600+204,800-57,000)*2]

Weighted average number of common stock outstanding = 1,874,800

Preferred stock dividends = $4,600,000 * 8%

= $368,000

Earnings per share = (Net Income - Preferred stock dividends) / Weighted average number of common stock outstanding  

= ($2,670,000 - $368,000) / 1,874,800

= $1.23