Problem 16-05
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Your answer is incorrect. Try again. | |
Amy Dyken, controller at Pharoah Pharmaceutical Industries, a public company, is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for Pharoah’s financial statements. Below is selected financial information for the fiscal year ended June 30, 2020.
Pharoah Pharmaceutical Industries |
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Long-term debt | ||
Notes payable, 10% |
$1,020,000 |
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9% convertible bonds payable |
5,030,000 |
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10% bonds payable |
5,950,000 |
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Total long-term debt |
$12,000,000 |
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Shareholders’ equity | ||
Preferred stock, 5% cumulative, $50 par value, 100,000 shares authorized, 25,000 shares issued and outstanding |
$1,250,000 |
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Common stock, $1 par, 10,200,000 shares authorized, 1,020,000 shares issued and outstanding |
1,020,000 |
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Additional paid-in capital |
3,990,000 |
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Retained earnings |
5,980,000 |
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Total shareholders’ equity |
$12,240,000 |
The following transactions have also occurred at Pharoah.
1. | Options were granted on July 1, 2019, to purchase 200,000 shares at $16 per share. Although no options were exercised during fiscal year 2020, the average price per common share during fiscal year 2020 was $20 per share. | |
2. | Each bond was issued at face value. The 9% convertible bonds will convert into common stock at 50 shares per $1,000 bond. The bonds are exercisable after 5 years and were issued in fiscal year 2019. | |
3. | The preferred stock was issued in 2019. | |
4. | There are no preferred dividends in arrears; however, preferred dividends were not declared in fiscal year 2020. | |
5. | The 1,020,000 shares of common stock were outstanding for the entire 2020 fiscal year. | |
6. | Net income for fiscal year 2020 was $1,510,000, and the average income tax rate is 20%. |
For the fiscal year ended June 30, 2020, calculate the following
for Pharoah Pharmaceutical Industries. (Round answers
to 2 decimal places, e.g. $2.45.)
(a) Basic earnings per share.
Basic earnings per share | $
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(b) Diluted earnings per share.
Diluted earnings per share | $
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Need to calculate "Basic Earning per share " and " Diluted Earning per share" | ||||
Amnt($) | ||||
Net Income Year 2020$ | 15,10,000 | |||
Less - | ||||
Preference Dividend | ||||
5% *25000 shares *$50/share | 62,500 | |||
Net Income after preference Div | 14,47,500 | a | ||
Number of shares Outstanding | 10,20,000 | b | ||
Basic Earning per share | 1.4191 | (a/b) | ||
Diluted Earning per share | ||||
Avergae income tax rate 20% | ||||
9% convertable Bond payable $ | 50,30,000 | |||
Interest on Bond ( Net of Tax)$ | 3,62,160 | c | ||
9%*$5030000*(100%-20%( | ||||
Converted common Share | 2,51,500 | d | ||
as per Question | ||||
Converted into common stock at 50 | ||||
share per $ 1000 Bond | ||||
($5030000/$1000)*50 | ||||
Convertible Bond(c/d) | 1.4400 | |||
Market price ($20) > Option price ($16) | ||||
So Option is Diluted | ||||
Incremental Share derived | 40,000 | |||
(market Price - Option price )/Market Price* Number of Option | ||||
($20-$16)/$20*200000 | ||||
Finally derived Diluted EPS | ||||
Net Income - pref Div+ Interest ( Net of Tax) | ||||
Net income $Less Pref Div ( as above) | 14,47,500 | |||
Add - Interest ( net of Tax) | 3,62,160 | |||
Total Value $ | 18,09,660 | E | ||
Number of Share | ||||
Common Share issue | 10,20,000 | |||
Convertable Bond - Share( as above) | 2,51,500 | |||
Incremental Share derived( as above) | 40,000 | |||
Number of Share Total | 13,11,500 | F | ||
Finally derived Diluted EPS(E/F) | 1.380 |
Problem 16-05 Your answer is incorrect. Try again. Amy Dyken, controller at Pharoah Pharmaceutical Industries, a...
Problem 16-05
Your answer is incorrect. Try again.
Amy Dyken, controller at Pharoah Pharmaceutical Industries, a
public company, is currently preparing the calculation for basic
and diluted earnings per share and the related disclosure for
Pharoah’s financial statements. Below is selected financial
information for the fiscal year ended June 30, 2020.
Pharoah Pharmaceutical Industries
Selected Balance Sheet Information
June 30, 2020
Long-term debt
Notes payable, 10%
$1,020,000
9% convertible bonds payable
5,030,000
10% bonds payable
5,950,000
Total long-term debt
$12,000,000...
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