Question

Sauna-N-Baths, Inc., reported the following securities December 31, 20X1:

• Common shares 100,000 outstanding.

• Preferred shares, $3, cumulative 30,000 shares outstanding. These shares were also convertible into common shares 5-for-1. Dividends on these shares are paid quarterly on March 31, June 30, September 30 and December 31.

• 6% $1,000 convertible bonds outstanding at par value, $3,000,000. The bonds are convertible into 60,000 common shares. Annual interest on the bonds is payable on December 31 and amounted to $150,000.

• 25,000 warrants, each entitling the holder to purchase 8 common shares of Sauna-N-Baths at $21 each.

• 15,000 put options, each entitling the holder to sell 2 common shares of Sauna-N-Baths at $18 each.
Additional Information
• The company had issued 40,800 common shares on March 1 under a takeover agreement wherein Sauna-N-Baths bought all of the operating assets of Poolz Corporation.

• On April 1, some of the preferred shareholders exercised their conversion rights and the company issued 50,000 common shares to them.

• On April 30, the company declared a 3:1 stock split for common shares. All conversion and price variables were also adjusted proportionately.

• On May 1, the company repurchased 21,750 common shares in the market and cancelled them.

• Assume the average market price of the common shares to be $15 per share before taking into account the effect of the stock split.

• Dividends on the preferred shares were declared and paid when they came due to all preferred shareholders existing on the dividend date.

• The company reported a basic earnings per share of $1.204 in 20X2. There were no extraordinary or discontinued items to report in 20X2. The tax rate was 40%.
REQUIRED:
1. Determine the weighted average number of common shares to use in calculating the basic earnings per share by using the following template.

Date	# of shares outstanding	ratio	restatement	W/A C/S

2. Determine the amount of dividends declared and paid to the preferred shareholders during 20X2.
  

Answer 1