Earnings Per Share

Accounting 5102W

Situation 1

In order to determine the basic Earning Per Share (EPS) for Sherrad Corporation we had to sort through the detailed information provided by management. In doing that, we first took into account, Sherrard’s two for one stock split that occurred on February 1, 20x3. Since the issue date for the annual report is March 1, 20x3, the weighted-average number of shares outstanding for 20x2 must be calculated to reflect the stock split. Given that the 20x1 financials are included in the 20x2 annual report, the 20x1 weighted average number of shares outstanding must be recalculated to show the impact of the stock split as if it occurred in these two years. This will allow for an equivalent EPS comparison of the two fiscal years. Tables 1 and 2 reflect the changes in common shares for the past two years. As noted in Table 2, the impact of the February 20x3 two for one stock split is included.

Table 1Changes in Common Stock Shares in 20x1 |

  |   | Shares |

Date | Share Changes | Outstanding |

January 1 | Beginning balance | 8,000 |

October 1 | Issued 16,000 shares | 16,000 |

| Ending Balance | 24,000 |

| | |

Table 2Changes in Common Stock Shares in 20x2 |

  |   | Shares |

Date | Share Changes | Outstanding |

January 1 | Beginning balance | 24,000 |

July 1 | Repurchased 12,000 shares | 12,000 |

| | 12,000 |

Feb 1 | Two for one Split | 12,000 |

| Adjusted ending balance | 24,000 |

Table 3 reflects the original weighted calculation for the 20x1 outstanding shares and Table 4 shows the recalculated weighted average assuming that the stock split had occurred at the beginning of the 20x1 fiscal year. This results in a change in the weighted outstanding shares from 12,000 to 24,000. Table 5 shows the weighted average calculation for outstanding shares in 20x2. The 20x2 calculation assumes that the stock split occurred at the beginning of 20x2. Between the two years, the weighted average...