Acct 404 Class Handout

EPS Day 1

1. Using the following information, compute the weighted-average number of shares at year end.
 Shares Outstanding January 1: 10,000
 New Shares Issued June 30:: 5,000
 Shares Repurchased November 1: 2,000

2. Calculate the weighted average number of share at year end using the following information

Shares outstanding January 1 2,600

Shares issued for exercise of options on February 1 400
Shares issued for 10% stock dividend on May 1 300
Shares issued for cash on September 1 1,200
Shares repurchased on November 1 400
Shares issued for 3-for-1 stock split on December 1 8,200

No. of Stock Portion of

Date Shares Dividend Stock Split Year Weighted Average

3. Why must basic EPS associated with prior periods be adjusted for stock splits or stock dividends that occurred in
the current period?
4. Bronco Company uses a calendar year for financial reporting and issues financial statements by Mar 1. The
company is authorized to issue 5 million shares of $10 par common stock. Additional information is shown
below.
• Number of shares issues and outstanding as of 12/31/07 = 1,000,000
• A 10% stock dividend was declared on 9/30/08
• Shares issued for cash on 3/31/09 = 1,000,000
 A two-for-one stock split of Bronco’s common stock on 3/31/10.

a. What was the weighted-average number of common shares used in computing basic earnings per common
share for 2008 on the 2008 comparative income statement?

b. What was the weighted-average number of common shares used in computing basic earnings per common
share for 2008 on the 2009 comparative income statement?

c. What was the weighted-average number of common shares used in computing basic earnings per common
share for 2009 on the 2009 comparative income statement (pre-class quiz question #4)?

d. What was the weighted-average number of common shares used in computing basic earnings per common
share for 2009 on the 2010 comparative income statement?
5. Preferred stock example. Complete one step at a time.
 On December 31, 20X6, the firm had 10,000 shares of $100 par 8% cumulative preferred stock and 200,000
shares of common stock outstanding. On June 30, 20X7, issued 100,000 shares of common stock.
 On June 30, 20X7 the firm paid:
o An 8% dividend on cumulative preferred stock
o A $0.30 per share dividend on common stock (300,000 shares x $0.30 = 90,000).
o No additional stocks were issued during 20X7.
 Assume that in 20X7 the firm had net income of $380,000, which includes $75,000 income from
discontinued operations (net of tax).

a. Calculate EPS for 20X7 that should reported in the 20X7 year-end financial statements.

 On May 1, 20X8, the firm issued a 50% stock dividend on common stock. The stock dividend was the only
stock transaction for 20X8.

b. Calculate EPS for 20X7 that should reported in the 20X8 year-end financial statements.

No. of Stock Portion of

Date Shares Dividend Stock Split Year Weighted Average

c. Calculate Basic EPS for 20X8 assuming that net income for 20X8 was $420,000. (Hint: do not forget
about preferred stock.)