Chapter 10, Problem 10.1ME

To determine

Concept Introduction:

Basic Earnings per share:

The Basic Earnings per share is the amount of net income earned by each common share outstanding. The Earnings per share calculated by with help of following formula:

  $\text{Basic Earnings per share=}\frac{\text{Net Income - Preferred Dividend}}{\text{Weighted Average Common Shares Outstanding}}$

  $\begin{array}{l}\hfill \\ \text{Net Income available to common stockholder = Net income – Preferred Dividend}\hfill \end{array}$

Stock split:

Stock split refers to the dividing one share into two of more shares. It is usually done to make the share available for small investor with smaller value. A stock split does not affect the total stockholder's equity and it also does not require any journal entry.

To Calculate:

The earnings per share to be reported in Spike Inc's 2017 annual report.

Answer to Problem 10.1ME

The earnings per share to be reported in Spike Inc's 2017 annual report shall be $1.45 per share.

Explanation of Solution

The earnings per share to be reported in Spike Inc's 2017 annual report is calculated as follows;

Earnings per share before stock split =$5.80

Stock Split = 1/4

Earnings per share after stock split =$5.80/4 = $1.45