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On June 1, 2018, Novak Company and Splish Company merged to form Blossom Inc. A total...

On June 1, 2018, Novak Company and Splish Company merged to form Blossom Inc. A total of 837,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis.

On April 1, 2020, the company issued an additional 576,000 shares of stock for cash. All 1,413,000 shares were outstanding on December 31, 2020.

Blossom Inc. also issued $600,000 of 20-year, 7% convertible bonds at par on July 1, 2020. Each $1,000 bond converts to 36 shares of common at any interest date. None of the bonds have been converted to date.

Blossom Inc. is preparing its annual report for the fiscal year ending December 31, 2020. The annual report will show earnings per share figures based upon a reported after-tax net income of $1,395,000. (The tax rate is 20%.)

Determine the following for 2020.

(a) The number of shares to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)

(1)

Basic earnings per share

enter a number of shares rounded to 0 decimal places

 shares
(2)

Diluted earnings per share

enter a number of shares rounded to 0 decimal places

 shares


(b) The earnings figures to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)

(1)

Basic earnings per share

$enter a dollar amount rounded to 0 decimal places
(2)

Diluted earnings per share

$

Solutions

Expert Solution

Part (a)(1)

Calculation of number of shares to be used for calculating basic Earning per share
Dates Shares Weight Weighted number of shares
1-1-2018 to 1-4-2018 837000 3/12 209250
1-4-2018 to 31-12-2018 1413000 9/12 1059750
TOTAL NO OF SHARES 1269000

Part (a)(2)

Calculation of number of shares to be used for calculating diluted Earning per share
Dates Shares Weight Weighted number of shares
1-1-2018 to 1-4-2018 837000 3/12 209250
1-4-2018 to 1-7-2018 1413000 3/12 353250
1-7-2018 to 31-12-2018** 1434600 6/12 717300
TOTAL NO OF SHARES 1279800
Working note **
Value of bonds issued $600000
Each $ 1000 is convertible to 36 shares
Hence number of shares convertible is ($ 600000/1000)x36=21600

Part (b)(1)

Calculation of earning figures to be used for calculating Basic earning per share
Earning figure for calculating basic earning per share is net income after tax which is $1395000

Part(b)(2)

Calculation of earning figures to be used for calculating Diluted earning per share
Net income $1395000
Savings on interest $ 600000*7% for 1/2 year $21000
Less:Additional tax payable in interest savings @20% $4200
Adjusted net income for calculating Diluted EPS $1411800

ekkarill92 answered 1 year ago
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