Question

In: Accounting

The following information was taken from the books and records of Ludwick, Inc.: 1. Income from...

The following information was taken from the books and records of Ludwick, Inc.:

1. Income from Continuing Operations $ 480,000

Discontinued Operations (net of tax) 70,000

2. Capital structure:

a. Convertible 6% bonds. Each of the 300, $1,000 bonds is convertible into 50 shares of common stock at the present date and for the next 10 years. 300,000

b. $10 par common stock, 200,000 shares issued and outstanding during the entire year. 2,000,000

c. Stock warrants outstanding to buy 16,000 shares of common stock at $20 per share.

3. Other information:

a. Bonds converted during the year None

b. Income tax rate 30%

c. Convertible debt was outstanding the entire year

d. Average market price per share of common stock during the year $32

e. Warrants were outstanding the entire year f. Warrants exercised during the year None

To do:

a. Compute Basic Earnings per share for Income from Continuing Operations, Discontinued Operations, and Net income

b. Analyze: show the impact of each dilutive security.

c. Integrate: Compute Dilutive Earnings per share for Income from Continuing Operations, Discontinued Operations, and Net income

Solutions

Expert Solution

ans 1
Basic Earning per share
Net Income/Weighted average common stock
Incoome in $ A Weighted avg No. of common stock B EPS A/B in $
Income from Continuing Operations 480000 200000 2.4
Discontinued Operations (net of tax) 70000 200000 0.35
Net Income 550000 200000 2.75
ans b
Potential common stock
Convertible bonds 15000
300000/1000**50
Denominator will be 215000
Stock warrants
If excerised 16000*20 320000
At market rate 320000/32 10000
Dilutive portion 16000-10000 6000 potential stock
Denominator will be (215000+6000) 221000
Increase in numerator
After tax interest= 300000*6%*(1-.3) 12600
ans 3
For dilutive EPS
Incoome in $ A Weighted avg No. of common stock B Dilutive EPS A/B in $
Income from Continuing Operations (480000+12600) 492600 221000 2.23
Discontinued Operations (net of tax) 70000 221000 0.32
Net Income 562600 221000 2.55
If any doubt please comment

ekkarill92 answered 2 years ago
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