Quiz 13: P13: Earnings Per Share EPS

Business

PROBLEM DATA Ponce Towers, Inc., had 50,000 shares of common stock and 10,000 shares of $100 par value, 8% preferred stock outstanding on January 1, 2011. Each share of preferred stock is convertible into four shares of common stock. The stock has not been converted. During the year, Ponce Towers issued additional shares of common stock as follows: For 2011, Ponce Towers, Inc., had income from continuing operations of $545,000 and a $72,000 loss from discontinued operations (net of tax). REQUIREMENT As vice president of finance for the firm, you have been asked to calculate earnings per share for 2011. The worksheet EPS has been provided to assist you.

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Essay

Worksheet showing earnings per share for the company:

Q 2

PROBLEM DATA Ponce Towers, Inc., had 50,000 shares of common stock and 10,000 shares of $100 par value, 8% preferred stock outstanding on January 1, 2011. Each share of preferred stock is convertible into four shares of common stock. The stock has not been converted. During the year, Ponce Towers issued additional shares of common stock as follows: For 2011, Ponce Towers, Inc., had income from continuing operations of $545,000 and a $72,000 loss from discontinued operations (net of tax). REQUIREMENT Open the file EPS from the website for this book at cengagebrain.com. Enter all input items (A-F) in the appropriate cells in the Data Section. Enter all formulas in the appropriate cells in the Answer Section. Enter your name in cell A1. Save the completed file as EPS2. Print the worksheet when done. Also print your formulas. Check figure: Basic earnings per share from continuing operations (cell D29), $5.94.

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Worksheet showing earning per share: Basic earnings per share is calculated by taking net income less dividend requirements, which in this case is 8% for preferred stock, and dividing it by the weighted average common shares outstanding. Diluted earnings per share is calculated the same way except outstanding preferred stock is converted into outstanding common stock and added to the weighted average common shares outstanding.

Q 3

WHAT-IF ANALYSIS During 2012, Ponce Towers issued 30,000 additional shares of common stock on June 1 and 24,000 on November 1. The company earned $602,000 from continuing operations and $28,000 from another segment of the business that was discontinued during the year. Use your completed worksheet to prepare a computation of earnings per share for 2012. Erase any data in the Data Section that are not required for 2012. Save the solution for 2012 as EPS3 and print the results.

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Essay

Worksheet showing earnings per share for 2012: Basic earnings per share is calculated by taking net income less dividend requirements, which in this case is 8% for preferred stock, and dividing it by the weighted average common shares outstanding. Diluted earnings per share is calculated the same way except outstanding preferred stock is converted into outstanding common stock and added to the weighted average common shares outstanding.

Q 4

CHART ANALYSIS With the EPS3 file still on the screen, you are going to compare two charts in this step. To begin, click the Total Income sheet tab. The chart that appears on the screen depicts the trend for income from continuing operations and net income. Nice improvement. Now click the Basic EPS sheet tab. This chart shows the trend for basic earnings per share. Rather dismal! Given the good results in the first chart and the disappointing trends in the second chart, should the stockholders be pleased or unhappy Explain. When the assignment is complete, close the file without saving it again.

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Quiz 13: P13: Earnings Per Share EPS

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