CES Exercise 1618 Pronghorn Inc presented the following data

CES Exercise 16-18 Pronghorn Inc. presented the following data. Net income $2,350,000 Preferred stock: 52,000 shares outstanding, $100 par, 996 cumulative, not convertible 5,200,000 686,400 270,000 148,800 Common stock: Shares outstanding 1/1 Issued for cash, 5/1 Acquired treasury stock for cash, 8/1 2-for-1 stock split, 10/1 Compute earnings per share. (Round answer to 2 decimal places, e.g. $2.55.) Earnings per share s Click if you would like to Show Work for this question: Open Show Work

Solution

Solution:

Earnings Per Share

Earnings per share is the part of company’s profit allocated to each weighted average outstanding shares of common stock.

Earnings Per Share = Net Profit attributable to Common Stockholders / Weighted Average Number of Common Shares outstanding for the period

Here,

Net Profit attributable to Common Stockholders = Net Income – Dividends on Preferred Stock

= $2,350,000 – (2,000 Preferred Shares x $100 x 9%)

= 2,350,000 – 18,000

= $2,332,000

Weighted Average shares outstanding includes the beginning number of common shares outstanding plus the additional shares that were sold or issued during the periods, minus any shares that were bought back during the period.

Calculation of Weighted Average Shares Outstanding

Shares

Period in months outstanding

Weighted Average Shares Outstanding for year

Shares Outstanding

686400

4 Months

(Jan to April)

228800

(686,400*4/12)

Shares Outstanding

(686,400 + New Issued on 5/1)

956400

3 Months

(May to July)

239100

(956,400*3/12)

Shares Outstanding

(956,400 - Treasury 148,800)

807600

2 Months

(Aug to Sept)

134600

(807,600*2/12)

Shares Outstanding (807,600*2)

1615200

3 Months

(Oct to Dec)

403800

(1615200*3/12)

Total Weighted Average Shares Outstanding for the period

1006300

Earnings Per Share = Net Profit attributable to Common Stockholders $2,332,000 / Weighted Average Number of Common Shares outstanding for the period 1,006,300 Shares

= $2.32

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	Shares	Period in months outstanding	Weighted Average Shares Outstanding for year
Shares Outstanding	686400	4 Months (Jan to April)	228800 (686,400*4/12)
Shares Outstanding (686,400 + New Issued on 5/1)	956400	3 Months (May to July)	239100 (956,400*3/12)
Shares Outstanding (956,400 - Treasury 148,800)	807600	2 Months (Aug to Sept)	134600 (807,600*2/12)
Shares Outstanding (807,600*2)	1615200	3 Months (Oct to Dec)	403800 (1615200*3/12)
Total Weighted Average Shares Outstanding for the period	1006300