Question

On June 1, 2015, Coronado Company and Whispering Company merged to form Metlock Inc. A total of 837,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis.

On April 1, 2017, the company issued an additional 576,000 shares of stock for cash. All 1,413,000 shares were outstanding on December 31, 2017.

Metlock Inc. also issued $600,000 of 20-year, 7% convertible bonds at par on July 1, 2017. Each $1,000 bond converts to 36 shares of common at any interest date. None of the bonds have been converted to date.

Metlock Inc. is preparing its annual report for the fiscal year ending December 31, 2017. The annual report will show earnings per share figures based upon a reported after-tax net income of $1,395,000. (The tax rate is 40%.)

Determine the following for 2017.

(a) The number of shares to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)

(1)		Basic earnings per share				shares
(2)		Diluted earnings per share				shares

(b) The earnings figures to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)

(1)		Basic earnings per share		$
(2)		Diluted earnings per share

Answer 1

Solution shares a-1) I Dates Jan 1, 2017 - Apr 1, 2017 Ar 1, 2017 - Dec 31, 2017 Weight welghted sharer 832000 1413000 3/4 209250 1059250 1269000

2-2) Date sharez weight weighted Shares 837000 209250 1413000 353250 Jan 1, 2017 - Apr 1, 2017 Apr 1, 2017 - July 1, 2017 July 1, 2017 - Dec 31, 2017 1600000 1000X36 = 21600] Addetional Shares 1434600 717300 1279800 b-1) Basic Net Income = 1395000 Diluted : Net Income = 1395000 Add: Interest savings = 21000 [600000 X 7% X6/12] Less: additional tax = 8400 [21000X 40%] Adjusted Net Income = 1407600