Question

Range Energy Corp.’s financial statements for the current year ended December 31, 2017, have been completed and submitted to you for review. The equity account balances a year ago, at December 31, 2016, are as follows:

Preferred shares, $4.20 non-cumulative, 10,700 shares authorized,

issued, and outstanding $755,050

Common shares, unlimited shares authorized,

127,000 shares issued and outstanding 1,434,350

Retained earnings 686,295

The only share transactions during 2017 were the declaration and distribution of a 25,400 common share dividend on July 1 and the issuance of 14,100 common shares for cash on October 31. The company’s 2017 profit was $624,380. A cash dividend on the preferred shares was declared on December 1, but was not paid as of December 31. Earnings per share for 2017 were calculated as follows:

Profit

=

$624,380

= $3.75

Common shares outstanding on Dec. 31, 2017 166,500

Required:

1-a. The earnings per share is incorrect. Indicate what changes should be made to the numerator and the denominator?

1-b. Calculate the correct EPS.

Answer 1

EPS = (Earning during the period - Preferred Dividend) / Nos. of Shares outstanding

1. Changes to be made in numerator

Dividend on preferred share should be deducted from the profit

= $ 624,380 - $ 44,940 (10,700 x 4.2)

= $ 579,440, Earning attributable to common share holders

Changes to be made in denominator

Total nos. of common shares outstanding = Shares in the beggining of the period + Issued during the year

= 127,000 + 14,100

= 141,100

2. EPS = Earning attributable to comon share holders / Nos. of shares outstanding

= 579,440 / 141,100

= $ 4.11