Question

On June 1, 2018, Monty Company and Flounder Company merged to form Culver Inc. A total of 808,000 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 568,000 shares of stock for cash. All 1,376,000 shares were outstanding on December 31, 2020.

Culver Inc. also issued $600,000 of 20-year, 7% convertible bonds at par on July 1, 2020. Each $1,000 bond converts to 44 shares of common at any interest date. None of the bonds have been converted to date.

Culver 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 $1,547,000. (The tax rate is 20%.)

Determine the following for 2020.

(a) The number of shares to be used for calculating:

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

(b) The earnings figures to be used for calculating: (

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

Answer 1

Compute the number of shares for calculating basic earnings per share as follows: Dates Jan 1 - Apr 1 Apr 1 - Dec 31 Weighted Shares Weight shares 8080003/12 202000 1376000 9/12 1032000 1234000 Compute the number of shares for calculating diluted earnings per share as follows: Date Jan 1 - Apr 1 Apr 1 - July 1 Jul 1 - Dec 31 (1376000 + 600*44) Shares Weight shares Weighted 08000 3/12 202000 1376000 3/12 344000 8 14024006/12 701200 1247200 Compute the net income for calculating basic earnings per share as follows: Net income = $1,547,000 Compute the net income for calculating diluted earnings per share as follows: Net income = Net income (basic) + Interest savings - Additional tax = $1,547,000 + (600,000 x 7% < ) - (821,000 40%) = $1,547,000 + $ 21,000 - $8,400 = $1,559,600