Chapter 19, Problem 19.6Q

To determine

Earnings per share (EPS): The amount of earnings made available to each common share is referred to as earnings per share.

Use the following formula to determine EPS:

$\begin{array}{c}\begin{array}{l}\text{Earnings }\\ \text{per share}\end{array}\}\text{ = }\frac{\text{Earnings available to common shareholders}}{\text{Weighted average number of common shares outstanding}}\\ \text{= }\frac{\text{Net income –Preferred dividends}}{\text{Weighted average number of common shares outstanding}}\end{array}$

Stock dividends: Stock dividends are the number of shares issued by a company to the existing shareholders in a proportion equal to the number of shares owned by each shareholder, based on a stock dividend percentage.

Stock splits: Stock split is the increase in number of shares due to splitting or decreasing par value of each share.

To explain: The treatment of stock dividends and stock options while computing weighted average number of common shares, and comparison of treatment of stock dividends and stock options while computing weighted average number of common shares when additional shares are sold