In-class Exercise #7 ACC 420 Fall 2017 Name On January 1, 2015, Change Corp. had
ID: 2589051 • Letter: I
Question
In-class Exercise #7 ACC 420 Fall 2017 Name On January 1, 2015, Change Corp. had 480,000 shares of common stock outstanding. During 2015, it had the following transactions that affected the Common Stock account. 1. February 1 March 1 May 1 Issued 120,000 shares issued a 20% stock dividend Issued 100,000 shares Assume that Change Corp. earned net income of $3,256,000 during 2015. In addition, it had 100,000 sha res of 996, $100 par cumulative preferred stock outstanding for the entire year. The company did not declare dividends in 2015. Instructions Compute basic EPS for 2015.Explanation / Answer
Solution :
Basic Earnings per share = income available for common shareholders / weighted average number of common shares outstanding.
Calculation of income available for common share holders :
Net income earned during 2015 : $3,256,000 - $900,000 i.e.Div accumulated on preferenance share holders ( 100,000*100*9%) =2356000
Calculation of weighted average number of common stock :
Hence Basic EPS = 2,356,000 / 756,666.67 = $ 3.1137
Date Transaction Shares Portion of Weighted Outstanding the year Average 2015 Jan 1 Beginning Balance 480,000 1/12 40,000 Feb 1 Fresh Issue of stock 120,000 600,000 1/12 50,000 Mar 1 20 % stock Dividend declared 720,000 2/12 120,000 May 1 Fresh Issue of stock 100,000 820,000 8/12 546,666.6667 Total 756,666.67