[annamaria623]

I am trying to do the earnings per share and diluted EPS for the income statement. I am really confused on how to record it on the income statement and how to figure it out. The period is for December 31, 2008:

Net Income: 4,200
Common Stock, $10 par, 3000 authorized ($6,500)
90 shares were sold on September 1, 2008

[morgaine300]

I'd hazard a guess that you haven't presented all the available information. So I waiver half of my answer if what I say doesn't fit your problem.

A basic earnings per share is the net income less preferred dividends divided by the common shares. That equation should be in your book. Any dividends for preferred stock is not available for common stock and therefore gets subtracted off first. You didn't present any information for preferred, but since I'm already suspecting there's stuff missing, I'm not convinced that it doesn't exist.

Always ignore the authorized shares - think of it as part of the description of the stock, because you'll never use it as part of a calculation. If you have a par value listed, that means the dollar value on the stock was done at par. i.e. $10 par x number of shares = total value. You have the total value. Work backwards to get the number of shares issued.

From there you need to figure out how many shares there were before the sale of 90 more. (Keep in mind the word "sold" in this context means issued.) Since they're giving you that, I presume they want a weighted average. That just basically means that instead of using the number of shares from the end of the year, you're going to average the 12 months of the year. Weighted averages are always done the same way, regardless of the topic. (If you ever learned it for something like, say, inventory, this works the same way. Learn how to do it and then you can apply it to anything.)

You have a certain amount of shares through August and then another amount from September on. So if you multiply those out by the number of months you had that number of shares and add those two together, you get the total for 12 months. Then divide by 12 to get the average. That's what you'll use for the division for the EPS.

However, you have no information at all related to doing a diluted EPS. Problems can be a little screwy, but I about refuse to believe they'd include that in the instructions with no information about it. So you either are assuming you need to do it when the problem didn't ask for it, or you've just left stuff out. And whenever anyone leaves out part of a problem, I also have to wonder what else they may have left out.

[annamaria623]

Thank you for getting back to me the question said to prepare an income statement (including earnings per share), assuming that of the total common stock at the end of year, 90 shares were sold. I assumed I had to come up with the diluted EPS.

Just to recap:
The number of shares issued is 650 (6500/10)

*I am confused on how to do the 90 shares sold?

The EPS= Net Income (4,200)- cash dividends declared (130 this is what I have for dividends nothing else) / 650= 6.26?

Does anything change on my balance sheet once I have configured the above? (I don't think so)

[annamaria623]

Here is the information that was given: I have to do an income statement, earnings per share, retained earnings, and classified balance sheet for December 31, 2008, assuming there is a flat 30% tax rate on all items including extraordinary items. I have included all of the items that were given and what I have done. My balance sheet is also not in balance for some reason... Please help!

Acct. Payable Credit of $2,866
Acct. Receiv. Debit 2,866
Acc. Depr.-Equip Credit 6,532
Advertising Exp. 1,437
Advances from Customers Credit 850
Allowance for Doubtful Accts. Credit 256
Amortization Expense Debit 100
Available for sale securities Debit 462
Bad Debts Expense Debit 325
Bonds Payable (9%, due December 31, 2013) Credit 10,000
Cash Debit 2,109
Cash Dividend Declared Debit 130
Common Stock, $10 Par, 3000 shares authorized credit 6500
COGS Debit 12,661
Depr. Expense Debit 3,890
Discount on Bonds Payable Debit 300
Equipment Debit 28,613
Income Tax Expense ?
Income Tax Payable ?
Interest Expense debit 950
Interest Payable credit 20
Interest income credit 143
Loss on Sale of Investments Debit 907
Merchandise inventory debit 6,519
Paid in Capital in excess of Par-Common credit 6,120
Plant expansion fund debit 1,100
Prepaid rent debit 200
Retained earnings, January 1 credit 2,154
Rent expense debit 1,900
Sales credit 33,471
Trademark debit 500
Utilities expense debit 1,286
Wages expense debit 4,158
Wages payable credit 156


Here is the income statement that I did:

Income Statement
For the Year Ending December 31, 2008

Net Sales $33,471
COGS ($12,661)
Gross Profit $20,810

OPERATING EXPENSES:
Advertising Expense ($1,437.00)
Amortization Expense ($100.00)
Bad Debts Expense ($325.00)
Depreciation Expense ($3,890.00)
Utiltities Expense ($1,900.00)
Rent Expense ($1,286.00)
Wages Expense ($4,158.00)
TOTAL OPERATING EXPENSES ($13,096.00)

Income from Operations $7,714.00

OTHER REVENUE
Interest Income $143 $143

OTHER EXPENSES
Loss on Sale of Investment ($907.00)
Interest Expense ($950.00)
($1,857.00)

Income Before Income Tax $6,000.00

Income Tax Rate 30%
Income Tax $1,800.00

NET INCOME $4,200.00


Here is the Retained Earnings statement that I did:

Retained Earnings Statement
For the Year Ending December 31, 2008

Beginning Balance Previously
Reported as of January 1 $2,154

Net Income $4,200
Cash Dividends Declared ($130)

ENDING BALANCE: $6,224

Here is the Balance sheet that I did:

ASSETS
Current Assets
Cash $2,109
Accounts Receivables $2,866
Allowance for Doubtful Accounts ($256)
Merchandise Inventory $6,519
Prepaid Rent $200

Total Current Assets $11,438

INVESTMENTS AND FUNDS
Available for Sale Securities $462
Plant Expansion Fund $1,100

Total Investments & Funds $1,562

FIXED ASSETS
Equipment $28,613
Accumulated Depreciation on Equipment ($6,532)

Total Fixed Assets $22,081

INTANGIBLE AND OTHER ASSETS
Trademark $500 $500

TOTAL ASSETS $35,581

LIABILITIES
Current Liabilities
Accounts Payable $4,211
Interest Payable $20
Advances from Customers $850
Wages Payable $156
$5,237
Total Current Liabilities

NON-CURRENT LIABILITIES
Bonds Payable (9%, due December 31, 2013) $10,000
Discount on Bonds Payable ($300)

Total Non-Current Liabilities $9,700

TOTAL LIABILITIES $14,937


STOCKHOLDERS EQUITY
Paid in Capital
Common Stock, $10 Par, 3,000 shares authorized $6,500
Paid in Capital in Excess of Par-Common $6,120

Total Paid in Capital $12,620

Retained Earnings $6,224

TOTAL STOCKHOLDER'S EQUITY $18,844

TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $33,781

[morgaine300]

I assumed I had to come up with the diluted EPS.

You don't just do diluted for fun. There has to be something to convert that would dilute it. I see nothing like that.

I don't have time at the moment to go clear through your other post (got stuff to get done outside before it gets dark :rolleyes:) but I can make a couple of comments:

Just to recap:
The number of shares issued is 650 (6500/10)

That part is right.

*I am confused on how to do the 90 shares sold?

They had 650 at the end of the year. If they issued 90 more shares back in September, how many did they have before they issued 90 more?

The EPS= Net Income (4,200)- cash dividends declared (130 this is what I have for dividends nothing else) / 650= 6.26?

First, you can't do this until you have weighted average shares. Second -- and if you're doing stuff like diluted EPS I would think this is something that would be basic at this point in time -- you don't subtract just any old dividends. Dividends for the PREFERRED shareholders is not available to the common shareholders. Therefore they have to be subtracted off the net income first. I can see from the long post that there isn't any preferred stock, so there's nothing to subtract off. What you have up there is the common dividends - you don't subtract that.

I would suggest going back and doing some review of the classes of stock and what they mean, and the concept of how preferred stock works - that is, having preference of dividends and in liquidation, etc. and therefore why that affects things like earnings per share. If you don't have those basic ideas down, you'll never be able to deal with doing diluted EPS. (This problem doesn't require it that I can see, but if you've heard of it, then you're being required to do it somewhere.)

[morgaine300]

Well... for starters, the original trial balance you were given doesn't balance. Can you check and make absolutely certain nothing was left out and that all the numbers were correct? You can't balance if the problem doesn't balance to begin with.

Actually, I have several textbooks around here. If you can tell me what it is (incl author) I might have it. Or if it can be gotten to online without logging in.

[morgaine300]

I just found your Excel file on the other post. I'm bringing that over here too, so everything is in one thread. (Haven't gone through it, but it looks pretty.)

[morgaine300]

Your statements are very neat and well laid out. I like that.:) Just as a note though, we generally don't put expenses and such as negatives. i.e. keep them positive numbers and then subtract them - they're understood to be minus's. Same when you have "less" something. (I'm sending back an example.) About the only exception, where you might want the parenthesis, is where it wouldn't be an automatic understood, like other expenses or a bottom-line net loss or something. Yeah, technicality... but what you're doing just isn't "normal." Oh, and be consistent with the pennies. Since you have no pennies I'd leave it off, but at least be consistent in your formatting. (Yeah, another technicality, but since it looks so pretty, I'd hate to see it messed up like that. ;))

The income statement is fine except for the EPS because it's the wrong amount of shares. Good job getting everything where it belongs though. Retained earnings statement fine.

Now, the balance sheet...

It's the taxes. First of all, income taxes payable belongs in its own account so you need to separate it out. Second, you plugged in that 1345 that was out of balance on the original, and didn't do anything with the current tax from the income statement.

Which makes me wonder what they are doing. I suspect you've left out instructions. It's looking to me like the 1345 that is out of balance is a payable tax that should have been in the original trial balance. That's a little silly for that number not to be included already. Somewhere the 1800 has to be added in. You're exactly 1800 off and that's why. But they should have given some very explicit instructions about what they want you to do with that, cause it's not making a lot of sense to me to already have 1345 in a current tax payable, and then add a current tax payable for the current year to it. Something just feels screwy in that. Yes, it can come out that way, but it would be an adjustment that would have to be made when everything's done and I just don't think you're to that level - it just feels a bit unrealistic.

In fact, I'm only guessing about the 1345 because you chose to stick it into the liabilities. I really don't know. Just make sure you check the instructions carefully on that.

BTW, the EPS won't affect your balance sheet in any way, no. EPS is strictly an income statement issue.

[morgaine300]

Here's a bit of you balance sheet back with an example and comments.