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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Lyon Company shows the following condensed income statement information for the year ended December 31, 2019:

Chapter 16, Problem 19E, Lyon Company shows the following condensed income statement information for the year ended December

Lyon declared dividends of $6,000 on preferred stock and $17,280 on common stock. At the beginning of 2019, 10,000 shares of common stock were outstanding. On May 1, 2019, the company issued 2,000 additional common shares, and on October 31, 2019, it issued a 20% stock dividend on its common stock. The preferred stock is not convertible.

Required:

  1. 1. Compute the 2019 basic earnings per share.
  2. 2. Show the 2019 income statement disclosure of basic earnings per share.
  3. 3. Draft a related note to accompany the 2019 financial statements.

1.

To determine

Calculate the basic earnings per share for the year 2019.

Explanation

Earnings per share (EPS):

The amount of net income available to each shareholder per common share outstanding is referred to as earnings per share (EPS).

Calculate the basic earnings per share for the year 2019.

Basic Earnings per share = Net income-Preference  dividendsAverage number of shares  outstanding(1)=$27,760$6,000(1,000×100×6%)13,600=$1.60

Basic Earnings per share related income before discontinued operations}Net income-Preference  dividendsAverage number of shares  outstanding(1)=$29,936$6,000(1,000×100×6%)13,600=$1.76

Working notes:

(1) Calculate the number of shares outstanding in common stock

2.

To determine

Identify the manner by which the basic earnings per share will be disclosed in its 2019 income statement.

3.

To determine

Write a note related to the earnings per share to accompany the financial statements of 2019.

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