Question

Exercise 16-23

On June 1, 2018, Martinez Company and Sandhill Company merged to form Teal Inc. A total of 733,000 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 577,000 shares of stock for cash. All 1,310,000 shares were outstanding on December 31, 2020.

Teal Inc. also issued $600,000 of 20-year, 8% convertible bonds at par on July 1, 2020. Each $1,000 bond converts to 42 shares of common at any interest date. None of the bonds have been converted to date.

Teal 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 $1,475,000. (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

is Share Basic Ewning Pen (a) (1) SEED weighted Porno Fucose non Average No. of shares outstanding 9 733000 x 12 + 577000x ta (multiply shares with I No. of months in a year (no 12 733000 + 432750 1165750 Shares. 116575 43.9250

(a) (ii) Diluted Shares 600ooo xua 1000 = 25200 No.of share used for Calwlating Diluted EPS = weighted Avg No. of shares outstanding + Diluted Shares - 1165750+25200 - 1190950 Problem - 6 Earnings used to calculate Basic EPS = Net Income = 1475000

Dilored Earnings = Net Income + Interest on + Interest on bonds - (Tax Savings on bonds) . 1475000 + (6.0.0.00 X 8%)-( 201 ( GooooxP;) - 1475000 + 48000- 2ov.curooo) = 1475000 + 48000 9600 > 1513400
note :

There are two methods to calculate weighted avg shares outstanding

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