Exercise 10.7
Finco’s Earnings per share after the 3-for-1 stock split will be:
Reported EPS in 2015 $1.56
Reported EPS for 2015 in 2016 = $1.56/3 =$ 0.52
Reported EPS For 2015 in 2016 $0.52
In 2017, there was a further share split of 2-for-1, therefore reported EPS for 2015 in 2017
= $0.52/2 =$ 0.26
EPS for 2015 $1.56
In 2016, Finco issue of 10% stock dividend resulted in 110 shares outstanding for every 100 shares that were outstanding before the stock dividend.
Reported EPS of 2015 in 2016 for comparison purposes =$ 1.56/1.1 = $1.42
Exercise 10.8
There is no effect on retained earnings after a share split and therefore Gluco’s Inc. reported net incomes for 2016 in 2017 will remain the same $925,980.
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EPS reported in 2016
EPS = Net income for the year(2016)/Total number of common stock outstanding
= $925,980/268,400 = $3.45
EPS for 2016 reported in 2017 for comparison purposes
There was share split of 3-for-1 and therefore number of common stock of 2016 in 2017 will be:
Number of common stock in 2016 = 268,400×3 =805,200
EPS = Net income/ number of shares
= $925,980/805,200 = $1.15
