Question

Question:

Below we present Nickel ​Incorporated's current-year partial income statement. Nickel is subject to a 30% income tax rate.

Partial Income Statement	Current Year
Income from continuing operations	$1,250,390
Discontinued operations-income, net of tax	$537,660
Net Income	$1,788,050

A partial balance sheet for the current year follows.

Partial Balance Sheet	Current Year
Liabilities:
5% Convertible Debt - issued at $1,000 par value (1)	$8,117,000
Stockholders Equity:
Common Stock, no par (1,036,000 shares issued and outstanding) (2)	$5,220,000
$3 Convertible Preferred Stock, $100 par value (42,600 shares issued and outstanding) (3)	4,260,000
Deferred compensation (employee options to acquire 253,125 shares)	(1,902,500)

Footnotes to the Balance Sheet:

1.) Each bond is convertible into 81 shares of common stock. The bonds are outstanding all year.

2.) The number of shares issued and outstanding did not change throughout the year.

3.) Each preferred share is convertible into 9 shares of common stock. The firm declared preferred dividends. The preferred stock was outstanding all year

4.) The options are exercisable at $14 per share and the average market price of the company's stock for the year is $35. The options were outstanding all year.

Answer:

Requirements:

a.) Based on the information​ provided, compute basic and diluted earnings per share​ (EPS) for the current year. Include all computations related to the application of antidilution​ sequencing, if needed.

Begin by calculating the incremental income per share on each of the potentially dilutive securities and ranking their order of entry into the EPS computation. ​(Complete all answer boxes. Enter a​ "0" for any zero balances. Round the increase in income amounts to the nearest dollar. Round the incremental income per share amounts to the nearest​ cent, $X.XX.)

Complete the table below to calculate the basic and diluted EPS on income from continuing operations and to identify whether each security is dilutive or antidilutive. ​(Complete all answer boxes. Enter a​ "0" for any zero balances. Round all per share amounts to the nearest​ cent, $X.XX. Abbreviation​used: ops.​ = operations.)

Calculate the basic earnings per share for net income. ​(Round the EPS to the nearest​ cent, $X.XX.)

Basic EPS from net income for the current year is $______

Calculate the diluted earnings per share for net income. ​(Round the EPS to the nearest​ cent, $X.XX.)

Diluted EPS from net income for the current year is $______

b.) Prepare the income statement disclosures required beginning with income from continuing operations.​(Complete all answer boxes. Round all EPS amounts to the nearest​ cent, $X.XX.)

* = _______ / _______ shares

** = ______ / _______ shares

Answer 1

Net income after tax	1,788,050
Less: dividend to preferred stock (42600*3)	127,800
Net income available for common stock holders	1,660,250
Net income available for common stock holders	1,660,250
Divided by: weighted average share in common stock	1,036,000
Basic earnings per share	$            1.6026

Stock options
Exercisable value of option (253125*14)	3,543,750
Number of Options	253,125
Less: Number of share repurchased (3543750/35)	101,250
Number of share adjusted	151,875
Convertible bond
Interest paid to bond (8117000*5%)	405,850
Less: tax on interest @ 30%	121,755
Adjustment in income for convertible bond	284,095
Conversion ratio	81
Number of bond (8117000/1000)	8,117
Number of share adjusted	657,477
Convertible preferred stock
Adjustment in income for convertible preferred stock = preferred divided	127,800
Conversion ratio	9
Number of preferred stock	42,600
Number of share adjusted	383,400

	Increase in earning	Increase in number of common shares	Earning per incremental share (Increase in earning / increase in number of common shares)
Options	0	151875	0.00
Convertible bond	284095	657477	0.43
Proffered stock	127800	383400	0.33
The order in which to include dilutive instruments (lowest Earning per incremental share considered First.)
1	Options
2	Convertible preferred stock
3	Convertible bond
Dilutive Earning per share
	Adjusted Net income	Potential common share	Per share (Adjusted Net income / potential common share)	Nature
As per Basic Earnings per share	1660250	1036000	1.6026
Add: options	0	151875		Dilutive
	1660250	1187875	1.3977
Add: Convertible preferred stock	127800	383400		Dilutive
	1788050	1571275	1.1380
Add: Convertible bond	284095	657477		Dilutive
	2072145	2228752	0.9297

Reported under financial statement
Basic earnings per share		$       1.60
Diluted Earnings per share using Net income		$       0.93

Disclosures required beginning with income from continuing operations.
	Adjusted Net income	Potential common share	Per share (Adjusted Net income / potential common share)	Nature
As per Income from continuing operations	1122590	1036000	1.0836
Add: options	0	151875		Dilutive
	1122590	1187875	0.9450
Add: Convertible preferred stock	127800	383400		Dilutive
	1250390	1571275	0.7958
Add: Convertible bond	284095	657477		Dilutive
	1534485	2228752	0.6885
Adjusted Net income for First line is 1250390-127800			1122590
Disclosures required beginning with income from continuing operations.
Basic EPS			1.08
Diluted EPS			0.69