Question

At January 1, 2017, Pronghorn Company’s outstanding shares included the following. 262,000 shares of $50 par...

At January 1, 2017, Pronghorn Company’s outstanding shares included the following. 262,000 shares of $50 par value, 7% cumulative preferred stock 826,000 shares of $1 par value common stock Net income for 2017 was $2,542,000. No cash dividends were declared or paid during 2017. On February 15, 2018, however, all preferred dividends in arrears were paid, together with a 5% stock dividend on common shares. There were no dividends in arrears prior to 2017. On April 1, 2017, 456,000 shares of common stock were sold for $10 per share, and on October 1, 2017, 118,000 shares of common stock were purchased for $20 per share and held as treasury stock. Compute earnings per share for 2017. Assume that financial statements for 2017 were issued in March 2018. (Round answer to 2 decimal places, e.g. $2.55.) What is Earnings per share?

Homework Answers

Answer #1
Net Income 2,542,000
Less: Preference dividend 917000
[262,000* 50 *7%]
Income available to common stockholders
[1]
1,625,000
Weighted average shares
[2]
1195425
Earnings per share
[1/2]
1.36

Workings:

Period No of months O/S Shares Weighted average
Opening balance Jan 1 - Mar 31 3/12 826,000 206500
Issue of new shares Apr 1 - Sep 30 6/12 1,282,000 641000
Buyback of stock Oct 1 - Dec 31 3/12 1,164,000 291000
Total 1138500

Weighted average shares on Feb 15 2018 = 1138500 * 105% = 1195425 ( since 5% dividend was announced as common stock).

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