Question

P16.5 (LO 5) Groupwork (EPS with Complex Capital Structure) Amy Dyken, controller at Fitzgerald Pharmaceutical Industries, a public company, is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for Fitzgerald's financial statements. Below is selected financial information for the fiscal year ended June 30, 2020. Fitzgerald Pharmaceutical Industries Selected Balance Sheet Information June 30, 2020 $ 1,000,000 5,000,000 6,000,000 $12,000,000 Long-term debt Notes payable, 10% 8% convertible bonds payable 10% bonds payable Total long-term debt Shareholders' equity Preferred stock, 6% cumulative, $50 par value, 100,000 shares authorized, 25,000 shares issued and outstanding Common stock, $1 par, 10,000,000 shares authorized, 1,000,000 shares issued and outstanding Additional paid-in capital Retained earnings Total shareholders' equity $ 1,250,000 1,000,000 4,000,000 6,000,000 $12,250,000 The following transactions have also occurred at Fitzgerald. 1. Options were granted on July 1, 2019, to purchase 200,000 shares at $15 per share. Although no options were exercised during fiscal year 2020, the average price per common share during fiscal year 2020 was $20 per share.

Answer 1

20 Ques 1 21 Basic EPS 22 =Net income-preferrence dividends / weighted average common shares outstanding 1500000 75000 24 Net income 25 Less:preference dividend 26 1250000*0.06 27 earnings available to common stockholders 1425000 29 Weighted average common shares 30 EPS-Basic 31 1425000/1000000 1000000 1.43 per share

C D 3 Ques 2 4 potential dilutive securities are the convertible bonds and stock options 400000 6 the interest on bonds 7 5000000*0.08 8 Less taxes 9 After tax amount 80000 320000 250000 additional shares 1 Bonds converted to common stock 25000000/100050 4 Stock options 5 200000shares issued 15option price 6 3000000total proceeds/20averagemarket price 7 200000 shares issued-150000shares assumed repurchased 3000000 150000 shares 50000 incremental shares 9 So for diluted EPS we have 0 Net income 1 less preferrence dividend 2 Add:interest saving 3 earnings available to common stockholders 1500000 -75000 320000 1745000 1000000 5 Weighted average no. of shares 6 original 7 Add:new shares issued 3 bonds stock option o total 250000 50000 1300000 2 Diluted EPS 3 1745000/1300000 $ 1.34 PER share