Question

On June 1, 2015, Metlock Company and Bonita Company merged to form Windsor Inc. A total of 830,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis. On April 1, 2017, the company issued an additional 643,000 shares of stock for cash. All 1,473,000 shares were outstanding on December 31, 2017. Windsor Inc. also issued $600,000 of 20-year, 8% convertible bonds at par on July 1, 2017. Each $1,000 bond converts to 42 shares of common at any interest date. None of the bonds have been converted to date. Windsor Inc. is preparing its annual report for the fiscal year ending December 31, 2017. The annual report will show earnings per share figures based upon a reported after-tax net income of $1,555,000. (The tax rate is 40%.)

Determine the following for 2017.

a. The number of shares to be used for calculating:

1. Basic earnings for share

2. Diluted earnings per share

b.The earnings figures to be used for calculating:

1. Basic earnings for share

2. Diluted earnings per share

Answer 1

a1)
Number of shares for Basic Earnings per share:
Date	Shares	Weight	Weighted-shares
Jan 1-Apr1	830000	3/12	207500
Apr1-Dec 31	1473000	9/12	1104750
			1312250
a2)
Number of shares for Diluted Earnings per share:
Date	Shares	Weight	Weighted-shares
Jan 1-Apr1	830000	3/12	207500
Apr1-Jul1	1473000	3/12	368250
Jul1-Dec31	1498200	6/12	749100	(600000/1000*42) = 25200 shares if converted
			1324850
b1)
Earnings figures to be used for calculating Basic earnings per share
Net income	1555000
b2)
Earnings figures to be used for calculating Diluted earnings per share
Net income	1555000
Interest savings net of tax	14400	=(600000*8%*1/2)*(1-0.4)
Adjusted income	1569400

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