Homework Answers
16-23.
a)
1. The number of shares to be used for calculating Basic Earnings Per Share:
Weighted average shares:
Opening - Jan. 1 - April 1 = 811,000 shares*3 months/12 months
= 202,750 shares
Issued - April 1 - Dec. 1 = 1,449,000 shares*9 months/12 months
= 1,086,750 shares
Total weighted average shares = 202,750 shares + 1,086,750 shares
= 1,289,500 shares
The number of shares to be used for calculating Diluted earnings per share:
Weighted average shares:
Opening - Jan. 1 - April 1 = 811,000 shares*3 months/12 months
= 202,750 shares
Issued - April 1 - Jul. 1 = 1,449,000*3 months/12 months
= 362,250 shares
Issued Convertible Bonds - Jul. 1 - Dec.1 = [1,449,000 shares + {$600,000/$1,000*42}]*6 months/12 months
= (1,449,000 + 25,200)*6 months/12 months
= 737,100 shares
Total Weighted average outstanding shares to calculate the Diluted earnings per share is 1,302,100 (202,750 shares + 362,250 shares + 737,100 shares).
b)
1. Earnings figures to be used for calculating the Basic earnings per share:
After tax net income of $1,568,000 is used for calculating the Basic earnings per share.
2. Earnings figures to be used for calculating the Diluted earnings per share:
Earnings for calculating the Diluted earnings per share = After tax net income + Interest on Convertible Bonds (net of tax) - Income Tax
= $1,568,000 + ($600,000*7/100*1/2) - ($600,000*7/100*1/2*40/100)
= $1,568,000 + $21,000 + $21,000*40/100
= $1,568,000 + $21,000 + $8,400
= $1,597,400
Note: Please note that as per HOMEWORKLIB RULES, the first question is answered.
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Net income for the year
$1,220,000
7% convertible bonds issued at par ($1,000 per bond); each bond
is convertible into
30 shares of common stock
1,990,000
6% convertible, cumulative preferred stock, $100 par value;
each share is convertible
into 3 shares of common stock
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