Question

Wendy Co. and Juan Co. traded the above equipment. The exchange LACKS commercial Wendy's Books Juan's Books 4) Exxon Inc. has net income (20% tax rate) of S5,000,000 for 2019, and an average number of shares outstanding during the year of 500,000 shares The corporation issued $4,000,000 par value of 20-year, 8% convertible bonds on January 1, 2020 at a $200,000 discount. The convertible bonds are convertible into 140,000 shares of common stock Assume the company uses the straight-line method for amortizing bond discount Instructions Compute the earnings per share data, excluding any notes if required. Page 3116

Answer 1

The first question has no information, hence, the second question is answered.

Earnings per share = Net Income - Preferred Dividends / Average number of out standing shares

= ($5,000,000 - $0) / 500,000 shares

= $10 per share

Therefore, earnings per share is $10.

Diluted earnings per share:

Diluted earnings per share = Net Income - Preferred dividend (+/-) changes in net income / Total outstanding shares after conversion

If 8% convertible bonds are converted into shares -

Increase in outstanding shares = 140,000 shares

Interest on bonds = $320,000 ($4,000,000*8/100)

Add: Annual amortized discount = $16,000 ($320,000/20 years)

Total savings in expenses = $336,000

Less: Income tax on savings = $67,200 ($336,000*20/100)

Total increase in net income = $268,800

Diluted earnings per share = Net Income - Preferred dividend (+/-) changes in net income / Total outstanding shares after conversion

Diluted earnings per share = Net Income - Preferred dividend + Increase in net income / Total outstanding shares after conversion

= ($5,000,000 - $0 + $268,800) / (500,000 shares + 140,000 shares)

= $5,268,800 / 640,000 shares

= $8.23 per share