Question

In: Accounting

Stamping began the current year with 450,000 common shares outstanding and issued an additional 90,000 shares...

Stamping began the current year with

450,000

common shares outstanding and issued an additional

90,000

shares on

September 1.

The firm has

$11,500,000,

2.5 %

convertible bonds on

June 30 (i.e., $287,500

coupon interest annually), which are convertible into

329,000

shares of common stock. The firm issued the bonds at par and did not convert any during the current year. It also had

$1,160,000

par value, 5%

nonconvertible, noncumulative preferred stock outstanding for the full year and declared dividends for the current year. The company is subject to a 30 %

effective tax rate and net income is

$3,700,000.

Requirement

Based on this information, compute basic and diluted earnings per share for the current year.

Calculate the basic earnings per share (EPS) for the current year. (Round the EPS to the nearest cent, $X.XX.)

Basic EPS for the current year is $

Expert Solution

Answer:

Calculation of basic earning per share:

Basic Earning per share = (Earning available for equity shareholders*/ Weighted average no. of outstanding shares**)

= $3,642,000 / 480,000

= 7.59 Per share

Notes:

*Earnings available for equity shareholders

Net Income	$3,700,000
Less: Preference Dividend ($1,160,000 x 5%)	($58,000)
Earnings available for equity shareholders	$3,642,000

**The weighted average number of outstanding shares

Outstanding shares at the beginning of the year	450,000
Additional issued on Sept 1 (90,000 x 4/12)	30,000
The weighted average number of outstanding shares	480,000

Calculation of diluted earning per share:

Diluted earning per share = (Earning available for equity shareholders*/ Weighted average no. of outstanding shares**)

= $3,742,625 / 809,000

= 4.63 Per share

Notes:

*Earnings available for equity shareholders

Net Income	$3,700,000
Less: Preference Dividend ($1,160,000 x 5%)	($58,000)
Add: Interest on bonds ($287500 x 6/12) (1-30%)	$100,625
Earnings available for equity shareholders	$3,742,625

**The weighted average number of outstanding shares

Outstanding shares at the beginning of the year	450,000
Additional issued on Sept 1 (90,000 x 4/12)	30,000
	480,000
Add: Number of bonds convertible into shares	329,000
The weighted number of outstanding shares	809,000

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