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At December 31, 2018, the financial statements of Hollingsworth Industries included the following: Net income for...

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 / =

Solutions

Expert Solution

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

ekkarill92 answered 4 months ago
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