Question

At December 31, 2018, the financial statements of Hollingsworth Industries included the following:

Net income for 2018	$	620	million
Bonds payable, 10%, convertible into 50 million shares of common stock	$	500	million
Common stock:
Shares outstanding on January 1		600	million
Treasury shares purchased for cash on September 1		36	million

Additional data:
The bonds payable were issued at par in 2016. The tax rate for 2018 was 40%.

Required:
Compute basic and diluted EPS for the year ended December 31, 2018. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)
  

	Numerator / Denominator = Earnings per share Basic / = Diluted / =

Answer 1

	Numerator	/	Denominator	=	Earnings per share
Basic	$                      620	/	588	=	$                           1.05
Diluted	$                      650	/	638	=	$                           1.02
Workings:
EPS	=	Net Income available to equity shareholders/Weighted average number of outstanding shares
EPS	=	$620 million/ 588 million shares
	=	$                  1.05
Weighted average number of outstanding shares	=	600 million - (36 million X 4/12)
	=	588 million	shares
Diluted EPS	=	Adjusted Net Income available to equity shareholders/Adjusted Weighted average number of outstanding shares
	=	$650 million/ 638 million shares
	=	$                  1.02
Adjusted Net Income available to equity shareholders	=	$620 million +[($500 million X 10% X (1-0.40)]
	=	$                   650
Adjusted Weighted average number of outstanding shares	=	600 million - (36 million X 4/12) + 50 million
	=	638 million	shares