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Topic
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I don’t get why year 1 uses 230,000 weighted shares outstanding and why year 2 uses 200,000. Can someone explain that??
Strauch Co. has one class of common stock outstanding and no other securities that are potentially convertible into common stock. During Year 1, 100,000 shares of common stock were outstanding. In Year 2, two distributions of additional common shares occurred: On April 1, 20,000 shares of treasury stock were sold, and on July 1, a 2-for-1 stock split was issued. Net income was $410,000 in Year 2 and $350,000 in Year 1. What amounts should Strauch report as earnings per share in its Year 2 and Year 1 comparative income statements?
a. $2.34, $1.75
b. $2.34, $3.50
c. $1.78, $3.50
d. $1.78, $1.75
Explanation
Choice “d” is correct. $1.78 and $1.75 EPS Year 2 and Year 1.
Year 1 410,000 / 230,000 = 1.78
Year 2 350,000 / 200,000 = 1.75
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