Question

On June 1, 2018, Marin Company and Headland Company merged to form Sage 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, 2020, the company issued an additional 596,000 shares of stock for cash. All 1,433,000 shares were outstanding on December 31, 2020. Sage Inc. also issued $600,000 of 20-year, 8% convertible bonds at par on July 1, 2020. Each $1,000 bond converts to 36 shares of common at any interest date. None of the bonds have been converted to date. Sage Inc. is preparing its annual report for the fiscal year ending December 31, 2020. The annual report will show earnings per share figures based upon a reported after-tax net income of $1,592,000. (The tax rate is 20%.) Determine the following for 2020. (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

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.

Answer 2 Part 1) 3 Basic earning per shares no. of shares 4 = Beginning outstanding shares + (shares issued *9/12) 5 = 837000 + (596000*9/12) 16 = 837000+447000 7 = 1284000 Shares 9 Diluted earning per shares no. of shares 10 = Beginning outstanding shares + (shares issued *9/12) +shares from conversion of bonds 11 = 837000 +(596000*9/12) + (600000/1000*36*6/12) 12 = 837000+447000+10800 13 = 1294800 Shares 15 Basic earning per share 1284000 Shares 16 Diluted earning per share 1294800 Shares -8 Part 2) 9 Basic earning per share earnings 0 = Net income !1 = 1592000 13 Diluted earning per share earnings 4 = net income + interest expense after tax !5 = 1592000 + (600000*8% 1/2*80%) !6 = 1592000+19200 !7 = $ 1611200 19 Basic earning per share $ 15,92,000 10 Diluted earning per share $ 16,11,200