Exercise 19-24 (Algo) New shares; contingently issuable shares [LO19-6,19-12] During 2021, its first year of operations,...

Exercise 19-24 (Algo) New shares; contingently issuable shares [LO19-6,19-12] 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 45 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 $146 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).)

Expert Solution

Computing basic and diluted earnings per share for the year ended December 31, 2021
= No. of shares Issued x time period
= 4 million x 9/12
= 3 million shares
Total average no. of shares issued and outstanding
= No. of shares as on Jan + No. of shares issued
= 45 million + 3 million
= 48 million shares
Earnings per shares (EPS) - Basic
= Net Income (-) Preference Dividend / Aveage No. of shares issued and outstanding
= $146 million / 48 million shares
= $3.041 per share
Basic Earnings per shares = $3.041 per share
Computation of Diluted EPS :
No. of shares issued and oustanding form March 31 to December 31 2021
= No. of shares Issued x time period
= 4 million x 9/12
= 3 million shares
Total average no. of shares issued and outstanding
= No. of shares as on Jan + No. of shares issued (+) New shares
= 45 million + 3 million (+) 1 million
= 49 million shares
Earnings per shares (EPS) - Diluted
= Net Income (-) Preference Dividend / Average No. of shares issued and outstanding
= $148 million (-) $0 / 49 million shares
= $3.020per share
Diluted Earnings per shares = $3.020per per share.

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