Question
In: Accounting
During 2021, its first year of operations, McCollum Tool Works entered into the following transactions relating...
During 2021, its first year of operations, McCollum Tool Works
entered into the following transactions relating to shareholders’
equity. The corporation was authorized to issue 100 million common
shares, $1 par per share.
| Jan. | 2 | Issued 25 million common shares for cash. | ||
| 3 | Entered an agreement with the company president to issue up to 2 million additional shares of common stock in 2022 based on the earnings of McCollum in 2022. If net income exceeds $140 million, the president will receive 1 million shares; 2 million shares if net income exceeds $150 million. | |||
| Mar. | 31 | Issued 4 million shares in exchange for plant facilities. |
Net income for 2021 was $142 million.
Required:
Compute basic and diluted earnings per share for the year ended December 31, 2021. (Do not round intermediate calculations. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)
Solutions
Expert Solution
Answer :
1) Basic earnings per share = $5.6126
2) Diluted earnings per share = $5.3992
Explanation :
1) calculation of basic earinings per share :
Step 1 : Calculation of total weighted average number of shares
| Details | number of shares |
| Weighted average number of shares on jan 2 (25M × 12/12) | 25M |
|
Weighted average number of shares issued on march 31 (4M × 9/12) |
0.3M |
| Total weighted average number of shares | 25.3M |
Step 2 : basic earnings per share
Earnings per share = (net income - preference dividends)÷ weighted average number of shares
= ($142 M - 0) ÷ 25.3 M
= $5.6126
2) calculation of diluted earnings.per share :
Step 1 : calculation of total weighted average number of shares
| Details | number of shares |
| Weighted average number of shares on jan 2 (25M × 12/12) | 25M |
|
Weighted average number of shares issued on march 31 (4M × 9/12) |
0.3M |
| Number of new shares due to an agreement | 1 M |
| Total weighted average number of shares | 26.3M |
Step 2 : calculation of diluted earnings per share
Diluted earnings per share = (Net income - preference dividend) ÷ weighted average number of common shares outstanding
= ($142M -$0) ÷ 26.3M
= $5.3992
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