Question

The Alford Group had 202,000 shares of common stock outstanding at January 1, 2018. The following activities affected common shares during the year. There are no potential common shares outstanding.
  

2018
Feb.		28		Purchased 6,000 shares of treasury stock.
Oct.		31		Sold the treasury shares purchased on February 28.
Nov.		30		Issued 24,000 new shares.
Dec.		31		Net income for 2018 is $400,000.
2019
Jan.		15		Declared and issued a 2-for-1 stock split.
Dec.		31		Net income for 2019 is $400,000.

Required:

1. Determine the 2018 EPS.
2. Determine the 2019 EPS.
3. At what amount will the 2018 EPS be presented in the 2019 comparative financial statements?
(For all requirements, Enter your answers in thousands.)

Answer 1

Solution 1:

Computation of weighted average outstanding shares
Period	Outstanding shares	Fraction	Weighted average outstanding shares
1-Jan-18 to 28-Feb-18	202000	2/12	33666.67
1-Mar-18 to 31-Oct-18	196000	8/12	130666.67
1-Nov-18 to 30-Nov-18	202000	1/12	16833.33
1-Dec-18 to 31-Dec-18	226000	1/12	18833.33
Weighted average outstanding shares			200000

Earning per share = Net Income / Weighted average outstanding shares

= $400,000 / 200000 = $2 per share

Solution 2:

Weighted average outstanding shares for 2019 = 226000 * 2 = 452000 shares

Net Income = $400,000

Earning per share for 2019 = $400,000 / 452000 = $0.885 per share

Solution 3:

Restated EPS for 2018 to be presented in 2019 comparative financial statements = $400,000 / (200,000*2) = $1 per share