Question

On January 1, 2021, Tonge Industries had outstanding 580,000 common shares ($1 par) that originally sold for $25 per share, and 5,000 shares of 10% cumulative preferred stock ($100 par), convertible into 50,000 common shares.

On October 1, 2021, Tonge sold and issued an additional 12,000 shares of common stock at $34. At December 31, 2021, there were 21,000 incentive stock options outstanding, issued in 2020, and exercisable after one year for 21,000 shares of common stock at an exercise price of $32. The market price of the common stock at year-end was $50. During the year, the price of the common shares had averaged $42.

Net income was $720,000. The tax rate for the year was 25%.

Required:
Compute basic and diluted EPS for the year ended December 31, 2021. (Round "Earnings per share" answers to 2 decimal places. Enter your answers in thousands.)

Basic =

Diluted =

Answer 1

ANSWER

a&b) Answers are highlighted in yellow. EPS Answer can be rounded to 2 decimal here: Numerator Denominator Earning per share Basic $ 670 $ 583 $ 1.15 Diluted $ 720 $ 641 $ 1.12 670 583 Explanation: Net profit for common stock Basic EPS = Weighted Average number of outstanding Common Stock Net Income (720)-(500*10%) Weighted Average number of common stock: Date Shares Re-statement Weights Weighted Av. Jan.01, 2021 580 12/12 580 Oct.1, 2021 1 2 1 03/12 Total 583 Basic EPS = 1 $ 1.15 b) Net Profit for Common Equity (+) After Tax interest on Convertible debts (+) Convertible preferred dividends Weighted Average Common shares outstanding + All Dilutive potential Common stock Diluted EP: 720 641 Net Income Weighted Average number of common stock including dilutive: Agreement meet the conditions, therefore: Weighted Average common stock outstanding Covertible Preferred Stock Add: exercisable stock option (21) - (21*32)/50 Total Diluted EPS $ 1.12