At January 1, 2008, Langley Company’s outstanding shares included the following.
280,000 shares of $50 par value, 7% cumulative preferred stock
900,000 shares of $1 par value common stock
Net income for 2008 was $2,530,000. No cash dividends were declared or paid during 2008. On February 15, 2009, however, all preferred dividends in arrears were paid, together with a 5% stock dividend on common shares. There were no dividends in arrears prior to 2008.
On April 1, 2008, 450,000 shares of common stock were sold for $10 per share, and on October 1, 2008, 110,000 shares of common stock were purchased for $20 per share and held as treasury stock.
Hint: (LO 6)
Instructions
Compute earnings per share for 2008. Assume that financial statements for 2008 were issued in March 2009.
|
Event |
Dates Outstanding | Shares Outstanding | Fraction of Year | Weighted Shares |
| Beginning balance | Jan. 1–April 1 | 900,000 | 3/12 | 225,000 |
| Issued shares | April 1–Oct. 1 | 1,350,000 | 6/12 | 675,000 |
| Reacquired shares | Oct. 1–Dec. 31 | 1,240,000 | 3/12 | 310,000 |
Weighted average number of shares outstanding—
unadjusted 1,210,000
Stock dividend, 2/15/09 1.05
Weighted average number of shares outstanding—
adjusted 1,270,500
Net income $2,530,000
Preferred dividend (280,000 X $50 X 7%) (980,000)
$1,550,000
Earnings per share for 2008:
| Net income applicable to common stock | = | $1,550,000 | = $1.22 |
| Weighted average number of common shares outstanding | 1,270,500 |
