Question

Hello

This is my question today.

On January 1, 2020, Carla Vista Ltd. had 510,000 common shares outstanding. During 2020, it had the following transactions that affected the common share account:

Feb. 1		Issued 198,000 shares.
Mar. 1		Issued a 19% stock dividend.
May 1		Acquired 222,000 common shares and retired them.
June 1		Issued a 2-for-1 stock split.
Oct. 1		Issued 64,000 shares.

The company’s year end is December 31.

1.Determine the weighted average number of shares outstanding as at December 31, 2020. (Round answer to 0 decimal places, e.g. 5,275.)

2. Assume that Carla Vista earned net income of $3,928,000 during 2020. In addition, it had 120,000 of 11%, $100 par, non-convertible, non–cumulative preferred shares outstanding for the entire year. Because of liquidity limitations, however, the company did not declare and pay a preferred dividend in 2020.

Calculate earnings per share for 2020, using the weighted average number of shares determined above. (Round answer to 2 decimal places, e.g. 15.25.)

3. Assume that Carla Vista earned net income of $3,928,000 during 2020. In addition, it had 120,000 of 11%, $100 par, non-convertible, cumulative preferred shares outstanding for the entire year. Because of liquidity limitations, however, the company did not declare and pay a preferred dividend in 2020.

Calculate earnings per share for 2020, using the weighted average number of shares determined above. (Round answer to 2 decimal places, e.g. 15.25.)

thank you

Answer 1

Solution a:

Computation of weighted average outastanding shares
	Number of shares	Stock Dividend Restatement	Stock Split Restatement	No. of months	Total Months	Weighted-average shares
Shares outstanding	510000	1.19	2	1	12	101150
Issued Shares	708000	1.19	2	1	12	132160
Stock Dividend	842,520		2	2	12	280840
Reacquired Shares	620520		2	1	12	103,420
2-for-1 stock split	1241040			4	12	413,680
Reissued shares	1305040			3	12	326,260
Total weighted average number of shares outstanding	1,357,510

Solution b:

Earnings per share = Net income / weighted average number of shares outstanding = $ 3,928,000/ 1,357,510 = $2.89

Solution c:

Preferred Dividend = 120000* 100*11% = $1,320,000

Earnings per share = (Net income- Preferred dividend) / weighted average number of shares outstanding = ($ 3,928,000- $1,320,000) / 1,357,510 = $1.92

if any doubt please mention in commnet