[shawnl112]

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?

Year 2 Year 1
a. 2.34 3.50
b. 1.78 3.50
c. 1.78 1.75
d. 2.34 1.75

Answer is c. 1.78 1.75

410,000/230,000 = 1.78
350,000/200,000 = 1.75

What is the reason for the 200,000 shares in year 1? Because stock splits goes beyond year 2?

[Anonymous]

I got curious and here is what I found in my Becker book: “If stock dividend or stock split occurs after the end of period but before financial statements are issued, those shares enter into the shares outstanding for the EPS calculations for all periods presented.”

[shawnl112]

This would make sense but that is like assuming a whole financial statements were not issued during Year 1.
Makes me wonder when the stock split would stop. Thanks for the answer btw.

[Anonymous]

The question does talk about comparative income statements, so totally make sense-this way the EPS is comparable to each other.

[Author]

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