Question

Fox Co. has one class of common stock outstanding and no other securities that are potentially convertible into common stock. During 20x4, 200,000 shares of common stock were outstanding. In 20x5, two distributions of additional common shares occurred: On April 30, 60,000 shares of treasury stock were sold, and on July 1, a 2-for-1 stock split was issued. Net income was $460,000 in 20x4 and $576,000 in 20x5. What amounts should Fox report as earnings per share in its comparative income statements for:

  20x4 20x5

$1.15 $2.30

$1.15 $1.20

$1.20 $1.15

$2.30 $1.20

Answer 1

2014:

Net income in 2014 = 460000

Number of shares outstanding in 2014 = 200000

Earnings per share = Net income in 2014/Number of shares outstanding in 2014  

= 460000/200000 = 2.3

2015:

Opening number of shares outstanding = 200000

Add: Weighted average number of treasury stock sold = 60000*(8/12) = 40000

Total number of shares outstanding before stock split = 240000

Total number of shares outstanding after stock split = 240000*2 = 480000

Net income in 2015 = 576000

Earnings per share = Net income in 2015/Number of shares outstanding in 2015

= 576000/480000 = 1.2

Answer is $2.30 $1.20