For the year ended December 31, 2016, Norstar Industries reported net income of
ID: 2477305 • Letter: F
Question
For the year ended December 31, 2016, Norstar Industries reported net income of $900,000. At January 1, 2016, the company had 700,000 common shares outstanding. The following changes in the number of shares occurred during 2016:
Compute Norstar's earnings per share for the year ended December 31, 2016
Apr. 30 Sold 20,000 shares in a public offering. May 24 Declared and distributed a 5% stock dividend. June 1 Issued 12,000 shares as part of the consideration for the purchase of assets from a subsidiary.Explanation / Answer
Answer: Calculation of the Norstar's earnings per share for the year ended December 31, 2016:
Numerator: Net Income = $900,000; Preferred dividends = $0
Denominator: Weighted Average # Shares Outstanding
1/1 – 12/31 700,000 x (12/12) = 700,000x 1.05 = 735000
4/30 – 12/31 20,000 x (8/12) = 13333.33 x 1.05 = 14000
6/1 – 12/31 12,000 x (7/12) =7000
Weighted average # shares outstanding =756,000
EPS = $900,000 ÷ 756,000 =$1.190