Question

In: Accounting

Assume that the following data relative to Kane Company for 2018 os available: Net Income 2900000...

Assume that the following data relative to Kane Company for 2018 os available:

Net Income 2900000

Transaction in common shares change cumulative

Jan. 1 2018 Beginning number. 710000

Mar 1 2018 Purchase of treasury shares (61200) 648800

June 1 2018 stock split 2-1. 648800. 1297600

Nov 1. 2018 Issuance of shares 258000. 1555600

6% cumulative convertible preferred stock

sold at par, convertible into 180000 shares of common (adjusted for split)

stock options

exercisable at the option price of $25 per share. Average market price in 2018 $30 (matket price and option price adjusted for split).

Part 1

compute weighted average shares outstanding for 2018.

weighted average shares outstanding

part 2

compute the basic earnings per share for 2018.

basic earnings per share $

part 3

compute the diluted earnings per share for 2018

diluted earnings per share $

Sold at par convertible into 180000 shares of common (adjusted for split). $900000

Solutions

Expert Solution

Solution:

Part 1- Number of shares outstanding as on 2018

Opening balance 710000

Less: purchase of treasury shares. (61200)

648800

ADD: Splitting up of shares(2:1). 648800

1297600

Add: Issuance of shares. 258000

1555600

Add: option for convertible bonds. 180000

Less: shares if they would have been

purchased at fair value

(180000*25/30). (150000)

Total shares outstanding. 1585600

Part 2: Basic Earnings per share

Net profit before any adjustments (a). 2900000/-

No of shares outstanding before

convertible option availed. (b). 1555600 shares

Basic Earnings per share ( a/b). 1.864/-

Part- 3 : Diluted Earnings per share

Net profit as given. 2900000/-

Add: Interest on convertible bonds

900000*6% 54000/-

Less: Tax on interest ( not given). ---

Adjusted Net profit. (a) 2954000/-N

Noof shares(as calculated in part 1) (b) 1585600 shares

Diluted Earnings per share (a/b). 1.8630/-

(If tax rate is assumed at 30%, then adjusted Net profit would be 2900000+54000-30%54000= 2937800. At the same time, Diluted Earnings per share would have become 1.852/-)

ekkarill92 answered 1 year ago

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