Chapter 16: EPS Flashcards
What is the formula for computing EPS?
EPS = [Net Income - Preferred Dividends] /
[Weighted Average Common Shares Outstanding]
————- Background Information ————-
Witches Corporation began the year with 100,000 shares outstanding.
In anticipation of upcoming employee compensation, on March 1, the corporation repurchased 20,000 shares.
On May 1, the company issued 15,000 shares to employees as part of their annual incentive
compensation.
On October 1, the corporation repurchased an additional 10,000.
On November 1, the corporation issued 25,000 shares, leaving 110,000 shares outstanding on
December 31.
————- Question ————-
What was the weighted-average shares outstanding for Witches Corporation for the year?
Portion of the year Shares Outstanding Weighted Shares Outstanding
2/12 (1/1 – 2/28) 100,000 16,667
2/12 (3/1 – 4/30) 80,000 13,333
5/12 (5/1 – 9/30) 95,000 39,583
1/12 (10/1 – 10/31) 85,000 7,083
2/12 (11/1 – 12/31) 110,000 18,333
Weighted average shares outstanding: 94,999
Witches Corporation reported net income for the year of $342,000 and paid preferred dividends of $20,000.
What EPS should Witches Corporation report?
(Assume 94,999 weighted avg commmon shares)
Numerator:
Net income – preferred dividends
= 342,000 – 20,000 = 322,000
Denominator:
Weighted-average shares outstanding (from above)
= 94,999
EPS: 322,000 / 94,999 = $3.39
————- Background Information ————-
Witches Corporation began the year with 100,000 shares outstanding. In anticipation of upcoming employee compensation, on March 1, the corporation repurchased 20,000 shares.
On May 1, the company issued 15,000 shares to employees as part of their annual incentive
compensation.
On August 1, Witches Corporation had a 2-for-1 stock split.
On October 1, the corporation repurchased an additional 10,000.
On November 1, the corporation issued 25,000 shares.
————- Question ————-
What was the weighted-average shares outstanding for Witches Corporation for the year?
How many shares are outstanding on December 31?
Portion of the year Shares Multiplier Weighted Shares
Outstanding Outstanding
2/12 (1/1 – 2/28) 100,000 2 33,334
2/12 (3/1 – 4/30) 80,000 2 26,666
3/12 (5/1 – 7/31) 95,000 2 47,500
2/12 (8/1 – 9/30) 190,000 31,667
1/12 (10/1 – 10/31) 180,000 15,000
2/12 (11/1 – 12/31) 205,000 34,167
Weighted average shares outstanding: 188,334
Shares outstanding on December 31: 205,000
