Question

On June 1, 2018, Riverbed Company and Marin Company merged to form Headland Inc. A total of 802,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis.

On April 1, 2020, the company issued an additional 625,000 shares of stock for cash. All 1,427,000 shares were outstanding on December 31, 2020.

Headland Inc. also issued $600,000 of 20-year, 8% convertible bonds at par on July 1, 2020. Each $1,000 bond converts to 38 shares of common at any interest date. None of the bonds have been converted to date.

Headland Inc. is preparing its annual report for the fiscal year ending December 31, 2020. The annual report will show earnings per share figures based upon a reported after-tax net income of $1,507,000. (The tax rate is 20%.)

Determine the following for 2020.

(a) The number of shares to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)

(1)		Basic earnings per share		enter a number of shares rounded to 0 decimal places		shares
(2)		Diluted earnings per share		enter a number of shares rounded to 0 decimal places		shares

(b) The earnings figures to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)

(1)		Basic earnings per share		$enter a dollar amount rounded to 0 decimal places
(2)		Diluted earnings per share		$enter a dollar amount rounded to 0 decimal places

Answer 1

(a) The number of shares to be used for calculating:

(1)		Basic earnings per share	1427000 Shares
(2)		Diluted earnings per share(Note-1)	1449800 Shares

Notes;

1. As per IAS-33 Number of shares used for calculating diluted earning per share include Total Common stock Outstanding at the year end + Common Stock Equivalents. Here Common Stock Equivalent is Debentures which will be converted into shares.

=$600000/$1000*38 Shares=22800 Additional Shares.

(b) The earnings figures to be used for calculating:

1	Basic Earnings Per Shares	$1,507,000
2	Diluted Earnings Per Shares (note-1)	$1,545,400

Notes;

1. As per IAS-33 Income of diluted earning per share include amount paid out to dilutive securities.Here $38400 ($48000(1-0.20) will be paid out yearly to debenture holder hence this amount has been added to the profit.