For the year ended December 31, 2018, Norstar Industries reported net income of

Question

For the year ended December 31, 2018, Norstar Industries reported net income of $655,000. At January 1, 2018, the company had 900,000 common shares outstanding. The following changes in the number of shares occurred during 2018:
  

Required:

Compute Norstar's earnings per share for the year ended December 31, 2018.

Apr. 30 Sold 60,000 shares in a public offering. May 24 Declared and distributed a 5% stock dividend. June 1 Issued 72,000 shares as part of the consideration for the purchase of assets from a subsidiary.

Explanation / Answer

Computation of Norstar’s earnings per share for the year ended December 31, 2018

Earnings Per Share = Net Income / Weighted Average Shares Outstanding

Net Income = $6,55,000

Weighted Average Shares Outstanding = [900,000(1.05)] + [60,000(8/12)(1.05)] + [72,000(7/12)]

= 10,29,000 Shares outstanding

Earnings Per Share = Net Income / Weighted Average Shares Outstanding

                             = $6,55,000 / 10,29,000 Shares

                               = $0.6365 per share

                               = $0.64 (Rounded)

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