Question

Exercise 16-16 (Part Level Submission) On January 1, 2021, Cullumber Corp. had 459,000 shares of common stock outstanding. During 2021, it had the following transactions that affected the Common Stock account. February 1 Issued 126,000 shares March 1 Issued a 10% stock dividend May 1 Acquired 101,000 shares of treasury stock June 1 Issued a 3-for-1 stock split October 1 Reissued 62,000 shares of treasury stock

(a) Your answer is correct. Determine the weighted-average number of shares outstanding as of December 31, 2021. The weighted-average number of shares outstanding enter the weighted-average number of shares outstanding as of December 31, 2018enter the weighted-average number of shares outstanding as of December 31, 2018 SHOW SOLUTION SHOW ANSWER LINK TO TEXT Attempts: 1 of 3 used

(b) Assume that Cullumber Corp. earned net income of $3,383,000 during 2021. In addition, it had 96,000 shares of 10%, $100 par nonconvertible, noncumulative preferred stock outstanding for the entire year. Because of liquidity considerations, however, the company did not declare and pay a preferred dividend in 2021. Compute earnings per share for 2021, using the weighted-average number of shares determined in part (a). (Round answer to 2 decimal places, e.g. $2.55.) Earnings Per Share $enter earnings per share rounded to 2 decimal places

Answer 1

                                 

Stock dividend = 10%(459000+126000)

                      = 58500 shares

Multiply each shares outstanding with 3 due to stock split

DATES	EVENT	SHARES OUTSTANDING (A)	STOCK SPLIT RESTATEMENT (B)	STOCK DIVIDEND RESTATEMENT        (C)	SHARES OUTSTANDING (A*B*C)
Jan-01	BEGINNING BALANCE	459000	3	1.1	1514700
Feb-01	ISSUED	585000	3	1.1	1930500
Mar-01	STOCK DIVIDEND	643500	3	1	1930500
May-01	TREASURY STOCK	542500	3	1	1627500
Jun-01	stock split 542500*3	1627500	1	1	1627500
Oct-01	TREASURY STOCK REISSUED	1689500	1	1	1689500

Restatement = 1+10% = 1.1 should be adjusted for shares outstanding before issue stock dividend

Weighted No of shares outstanding =

1514700*(1/12) + 1930500*(1/12) + 1930500(2/12) + 1627500 *(1/12)+1627500(4/12)+1689500*(3/12)

= 126225+160875+321750+135625+542500+422375

= 1709350

EARNINGS PER SHARE =

Net income / Average outstanding shares

Net income = 3383000

Basic Earnings Per share  =      3383000/ 1709350

                  = 1.979

= 1.98

DIVIDEND on non cumulative preference shares are not considerd because they are not declared by the company