Esau Inc. presented the following data: Net income ................................................................................................ $5,500,000 Preferred shares: 50,000 shares outstanding, $100 par,

Question:

Esau Inc. presented the following data:
Net income ................................................................................................ $5,500,000
Preferred shares: 50,000 shares outstanding, $100 par, 8% cumulative, not convertible ....... $5,000,000
Common shares: Shares outstanding, Jan. 1, 2014 ...................................................... 650,000
Issued for cash, May 1, 2014 ............................................................................... 100,000
Acquired treasury shares for cash, Sept. 1, 2014 (shares cancelled) .................................. 150,000
2-for-1 stock split, Oct. 1, 2014
As of January 1, 2014, there were no dividends in arrears. On December 31, 2014, Esau declared and paid the preferred for 2014.
Instructions
(a) Calculate earnings per share for the year ended December 31, 2014.
(b) Discuss what the effect would be on your calculation in (a) if the stock split had been declared on January 30, 2015, instead of on October 1, 2014, assuming the of Esau Inc. for the year ending December 31, 2014, were issued after January 30, 2015.
(c) Assume that Esau did not declare or pay a preferred in 2014. Calculate earnings per share for the year ended December 31, 2014.
(d) Assume that as of January 1, 2014, Esau had two years of dividends in arrears, and that on December 31, 2014, Esau declared and paid the dividends in arrears and the preferred for 2014. Calculate earnings per share for the year ended December 31, 2014.
(e) Assume that the preferred shares are non-cumulative, and that the preferred was paid in 2014. Calculate earnings per share for the year ended December 31, 2014.
(f) Assume that the preferred shares are non-cumulative, and that Esau did not declare or pay a preferred in 2014. Calculate earnings per share for the year ended December 31, 2014.
(g) Discuss the effect of a stock split on Esau Inc.'s market price per share. Would a current shareholder favour Esau Inc.'s declaration of a stock split?
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