Question

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?

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).