Question

Testbank Problem 148

The following information was taken from the books and records of Ivanhoe, Inc.:

1. Net Income $409,200

2. Capital structure:

a. Convertible 6% bonds. Each of the 280, $1,000 bonds is convertible into 50 shares of common stock at the present date and for the next 10 years. 280,000

b. $10 par common stock, 220,000 shares issued and outstanding during the entire year. 2,200,000

c. Stock warrants outstanding to buy 14,560 shares of common stock at $20 per share.

3. Other information: a. Bonds converted during the year None

b. Income tax rate 30%

c. Convertible debt was outstanding the entire year

d. Average market price per share of common stock during the year $32

e. Warrants were outstanding the entire year

f. Warrants exercised during the year None

Compute basic earnings per share. (Round answer to 2 decimal places, e.g. 52.75.)

Basic earnings per share $

Compute diluted earnings per share. (Round answers to 2 decimal places, e.g. 52.75.)

Security EPS

Common Stock $

Warrants $

Conversion Bonds $

Answer 1

Net Income = $409,200

Number of shares = 220,000 shares

Basic EPS = $ 1.86

Security	Net Income	Adjustment	Adjusted Net Income	Shares	Adjustment	Adjustment shares	Diluted EPS
Common Stock	409,200	-	409,200	220,000	-	220,000	1.86
Warrants	409,200	-	409,200	220,000	5460 [note 2]	231060	1.77
Convertible Bonds	409,200	11.760 [note 1]	420960	225600	14000	239600	1.76

Notes:

1. $2,80,000*0.06*0.70 = $11.760

2. Warrants = [14560*20 ]/ 32 =  291200/32 = 9100

  14,560 - 9100 = 5460