Question

At January 1, 2021, Canaday Corporation had outstanding the following securities:

710 million common shares
20 million 5% cumulative preferred shares, $50 par
6.4% convertible bonds, $4,000 million face amount, convertible into 80 million common shares

The following additional information is available:

• On September 1, 2021, Canaday sold 78 million additional shares of common stock.
• Incentive stock options to purchase 60 million shares of common stock after July 1, 2020, at $12 per share, were outstanding at the beginning and end of 2021. The average market price of Canaday’s common stock was $18 per share during 2021.
• Canaday's net income for the year ended December 31, 2021, was $2,374 million. The effective income tax rate was 25%.

Required:
1. & 2. Calculate basic and the diluted earnings per common share for the year ended December 31, 2021. (Round "Earnings per share" answers to 2 decimal places. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

Answer is complete but not entirely correct.

	Numerator / Denominator = Earnings per share Basic $2,324selected answer correct / 736selected answer correct = $3.16selected answer correct Diluted $192selected answer incorrect / 192selected answer incorrect = $2.40selected answer incorrect

Answer 1

2 Denominator Earnings per share 3 Basic Diluted Numerator 2324 2516 736 836 3.161 3.01 4 5 6 Workings: 7 Basic EPS Net Income available to equity shareholders/Weighted average number of outstanding shares $2324 million / 736 million shares $ 3.16 9 LO 11 2374 Net Income Preferred dividend (20 million X $50 X 5%) 12 Less: 50 Net Income available to equity shareholders 13 14 23241 Weighted average number of outstanding shares = 15 16 710 million + (78 million X 4/12) 736 million 17 18

18 19 Diluted EPS 20 21 22 23 Adjusted Net Income available to equity shareholders/Adjusted Weighted average number of outstanding shares $2516 million / 836 million shares 3.01 24 2374 25 Less: 50 Net Income Preferred dividend (20 million X $50 X 5%) Interest saved net off tax (4000 million X 6.4% X (1- 0.25) Net Income available to equity shareholders 26 Add: = 192 27 2516 28 Adjusted Weighted average number of outstanding shares 29 736 million + [60 million - (60 million X $12 / $18)] + 80 million 836 million 30 31 22

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