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Assume that the following data relative to Kane Company for 2018 is available: Net Income $2,890,000...

Assume that the following data relative to Kane Company for 2018 is available:

Net Income $2,890,000
Transactions in Common Shares Change Cumulative
Jan. 1, 2018, Beginning number 720,000
Mar. 1, 2018, Purchase of treasury shares (67,200) 652,800
June 1, 2018, Stock split 2-1 652,800 1,305,600
Nov. 1, 2018, Issuance of shares 240,000 1,545,600
6% Cumulative Convertible Preferred Stock
Sold at par, convertible into 190,000 shares of common (adjusted for split). $950,000
Stock Options
Exercisable at the option price of $25 per share. Average market price in 2018, $30 (market price and option price adjusted for split). 93,000 shares

Compute weighted average shares outstanding for 2018.

Weighted average shares outstanding

Compute the basic earnings per share for 2018. (Round answer to 2 decimal places, e.g. 52.75.)

Basic earnings per share $

Compute the diluted earnings per share for 2018. (Round answer to 2 decimal places, e.g. 52.75.)

Diluted earnings per share $

Solutions

Expert Solution

Answer:

Computation of weighted average shares outstanding

Jan-01

outstanding

720000

Mar-01

Repurchase

(67200*5/6)

56000

776000

Jun-01

2 for 1 split

1552000

Nov-01

issued

1/6*240000

40000

1592000

Additional shares for the purpose of diluted earnings per share

potentially dilutive securities

8% convertible preferred stock

190000

Stock options

    Proceeds from exercise of 99000 options

2325000

    Shares issued upon exercise of options

93000

    less: treasury stock purchasable with proceeds

(2325000/30)

77500

15500

    Dilutive securities - Additional shares

205500

Interest : 950000*6%

57000

Basic earnings per share

2890000-57000/1592000 =$1.78

Diluted earnings per share

2890000/(1592000+205500) = $1.61

ekkarill92 answered 1 year ago
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