Allen Lumber Company had earnings after taxes of $580,000 in the year 2006 with 400,000 shares outstanding. On January 1, 2007, the firm issued 35,000 new shares. Because of the proceeds from these new shares and other operating improvements, 2007 earnings was 25 percent higher than in 2006. Earnings per share for the year 2007 was
Earnings After Taxes in 2007:
Earnings After Taxes in 2006 $580,000
Increase in Earnings 145,000 ...
This solution illustrates how to compute earnings per share if a given level of earnings and shares are given but new shares are issued and earnings increases.