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EPS: Simple Capital Structure - Bailey Industries

(EPS: Simple Capital Structure) On January 1, 2010, Bailey Industries had stock outstanding as follows:

6% cumulative preferred stock, $100 par value, issued and outstanding 10,000 shares $1,000,000

Common stock, $10 par value, issued and outstanding 200,000 shares $2,000,000

To acquire the net assets of three smaller companies, Bailey authorized the issuance of an additional 170,000 common shares. The acquisitions took place as shown below.

Date of Acquisition Shares Issued

Company A - April 1, 2010 60,000
Company B - July 1, 2010 80,000
Company C - October 1, 2010 30,000

On May 14, 2010, Bailey realized a $90,000 (before taxes) insurance gain on the expropriation of investments originally purchased in 2000.

On December 31, 2010, Bailey recorded net income of $300,000 before tax and exclusive of the gain.

Assuming a 40% tax rate, compute the earnings per share data that should appear on the financial statements of Bailey Industries as of December 31, 2010. Assume that the expropriation is extraordinary.

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Solution Summary

Your tutorial (in Excel, attached, click in cells to see computations) takes you through the three steps needed - computing net income, computing weighted average common shares and computing the preferred dividend. Then the tutorial guides you through using these three amounts to get the EPS for the face of the financial statement.