Question

Grace Corp. suffered a net loss in 2020 of $250,000. The company has 230,000 common shares outstanding as of January 1, 2020, and declared a 1-for-2 reverse stock split on March 31. In addition, the company bought 11,500 shares for the treasury on August 31, 2020, and 4,600 shares of stock were issued on November 1, 2020, in exchange for legal services. The company had 2,300 shares of 5%, $10 par, cumulative, nonconvertible preferred stock for the year 2020. No common or preferred stock dividends were declared in 2020.
Compute the required EPS amount.

Answer 1

Answer:

-$2.24

Explanation:

For computation of EPS amount first we need to find out weighted average common shares outstanding and net income available to common stockholders the is shown below:-

Weighted average common shares outstanding = (Outstanding common shares ÷ 2) - (Treasury shares × 4 months ÷ 12 months) + (Issued shares × 2 months ÷ 12 months)

= (230,000 ÷ 2) - (11,500 × 4 ÷ 12) + (4,600 × 2 ÷ 12)

= 115,000 - 3,833.33 + 766.67

= 111,933.34

Net Income Available to Common Stockholders = Net loss - Number of shares × Par value × Shares percentage

= -$250,000 - 2,300 × $10 × 5%

= -$251,150

Earning per share = Net Income Available to Common Stockholders ÷ Weighted average common shares outstanding

= -$251,150 ÷ 111,933.34

= -$2.24

Therefore for computing the earning per share we simply applied the above formula.