In: Accounting
1. Inge Brothers Inc. had the following items in its capital structure at December 31, 2019: Preferred stock, 10%, $8 par value, convertible into 46,200 common shares no earlier than 2020, issued at par value on July 1, 2019 (current market value, $8 per share).................................................................... $1,660,000
Common stock, $20 stated value, issued January 2, 2016 (current market value, $17 per share).................................................................. 1,200,000
Treasury stock, common, 10,000 shares, acquired on November 30, 2018........ 280,000
Common stock options, issued in 2016, exercisable for 22,000 shares, beginning in 2021, at a “strike” price of $15 per share. The cash that would be received from the option-holders from a hypothetical exercise of the options at December 31, 2019 would be sufficient for Inge Brothers to acquire 8,800 shares of its own common stock (as treasury stock).
Stock warrants outstanding, issued in exchange for legal services at June 30, 2019, convertible into 9,800 shares of common stock at the discretion of the warrant-holders, but not earlier than 2022. The hypothetical conversion of the warrants at December 31, 2019 would require a cash payment from the warrant-holders, which would be sufficient for Inge Brothers to acquire 5,440 shares of its own common stock (as treasury stock) .................... 220,000
Additional paid-in-capital.................................................................................... 760,000
Retained earnings................................................................................................ 460,000
Inge Brothers’ net income for 2019 was $553,000. As of December 31, 2019, the company’s Board of Directors had not yet declared the dividend for 2019 for the preferred shareholders. What earnings per share would Inge Brothers Inc. report for the year ended December 31, 2019? Prepare a schedule to support your answer.
basic earning per share
for calculating basic earning per share we have to deduct preferential divident from net income.
then divide that amount with number of equity (common) shares
here net income for 2019 was $553,000
Preferred divident =1660000*10% = 166000
Balance income for EPS = 553000-166000 =387000
particulers | working | number of shares |
---|---|---|
shares issued on January 2016 | 1200000/20 | 60000 |
additional paid in capital | 760000/20 | 38000 |
Total | 98000 |
Basic Earning per Share = 387000/98000
=$3.949
Dialuted Earning per Share
Dialuted EPS = (Net income - preferred Dividends) / (Shares outstanding + Unexercised employee stock option+convertible preferred stock + convertible debt + Warrants)
Particulers | no of shares | diluted amount | dialuted shares |
---|---|---|---|
convertible preferred stock | 46200 | (17-8)*46200=415800 | 415800/17=24458.82 |
Treasury stock | 10000 | (28-17)*10000=110000 | 110000/17=6470.59 |
Common stock option | 22000 | (22000-8800)*15=198000 | 198000/17=11647.06 |
Stock warrants | 9800 | (9800-5440)=4360 | 4360 |
Total diluted shares= 24458.82+6470.59+11647.06+4360= 46936 shares
net income for common stock holders = 553000- (1660000-(46200*8))*10%
=553000-129040
=423960
Diluted EPS =423960/((46936)+98000)
=423960/144936
=$2.925
EPS= Earning Per Share