Big Horn Construction Company has gradually grown in size since its inception in 1919. The third generation

Question:

Big Horn Construction Company has gradually grown in size since its inception in 1919. The third generation of Jensens who now manage the enterprise are considering selling a large block of stock to raise capital for new equipment purchases and to help finance several big projects. The Jensens are concerned about how the EPS information should be presented on the income statement and have many questions concerning the nature of EPS.

1. Discuss the EPS presentation that would be required if Big Horn Construction has

(a) a simple capital structure or

(b) a complex capital structure. What factors determine whether a capital structure is simple or complex?

2. Assume that Big Horn Construction Company has a complex capital structure. Discuss the effect, if any, of each of the following transactions on the computation of EPS.

(a) The firm acquires some of its outstanding common stock to hold as treasury stock.

(b) The firm pays a dividend of $0.50 per common stock share.

(d) A 3-for-1 common stock split occurs during the year.

(e) Retained earnings are appropriated for a disputed construction contract that may be litigated.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...