Question

Sosa Diet Supplements had earnings after taxes of $1,580,000 in 20X1 with 330,000 shares of stock outstanding. On January 1, 20X2, the firm issued 55,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnings after taxes increased by 27 percent. a. Compute earnings per share for the year 20X1. (Round your answer to 2 decimal places.) b. Compute earnings per share for the year 20X2. (Round your answer to 2 decimal places.)

Answer 1

(a)-Earnings per share for the year 20X1

Earnings per share for the year 20X1 = Earnings after tax / Number of common shares outstanding

= $1,580,000 / 330,000 Common Shares outstanding

= $4.79 per share

(b)-Earnings per share for the year 20X2.

Earnings per share for the year 20X2 = Earnings after tax / Number of common shares outstanding

= [$1,580,000 x 127%] / [330,000 Common Shares + 55,000 Shares issued]

= $2,006,600 / 385,000 Common Shares

= $5.21 per share