Question

In: Accounting

During 2016, Sanchez, Inc. had the following convertible securities outstanding: $220,000 of 10%, $100 par, cumulative...

During 2016, Sanchez, Inc. had the following convertible securities outstanding:

  1. $220,000 of 10%, $100 par, cumulative preferred stock. Each share is convertible into 5 shares of common stock.
  2. $200,000 of 9.5% convertible bonds. Each $1,000 bond is convertible into 45 shares of common stock.
  3. $100,000 of 8% convertible bonds. Each $1,000 bond is convertible into 32 shares of common stock.
  4. $150,000 of 11%, $100 par, cumulative preferred stock. Each share is convertible into 5 shares of common stock.

Sanchez, Inc. has an income tax rate of 40%.

Required:

  1. Prepare a schedule that lists the impact of the assumed conversion of each convertible security on diluted earnings per share.
  2. Prepare a ranking of the order in which the securities would be included in the diluted earnings per share calculations.

Please do not copy from Chegg otherwise I have to report the answer. Explain the answer throughly by showing each step of the calculation.

Solutions

Expert Solution

Calculation of Impact of Conversion and Ranking for Dilution Test
Particular numerator ( Divident or Interest) before Tax Tax @40% numerator after Tax Denominator Incremental EPS or Impact of Conversion (3 /4) Ranking
1 2 3 4 5
Preferred Stock $ 22,000.00 $     8,800.00 $ 13,200.00        11,000.00 $           1.20 I
Convertible Bond $ 19,000.00 $     7,600.00 $ 11,400.00          9,000.00 $           1.27 II
Convertible Bond 8% $     8,000.00 $     3,200.00 $     4,800.00          3,200.00 $           1.50 IV
Cumulative Prefferred Stock $ 16,500.00 $     6,600.00 $     9,900.00          7,500.00 $           1.32 III
Note : I have assumed divident is also taxable @40 %
If you assume it is taxable at Some other rate , please make the changes in Tax Coloumn and

make your calculation be revised Numerator after Tax.

Note 2: Incremental EPS that is increase in EPS has been taken upto two decimal places.
Working Note
Preferred Stock
Divident =220000X10%
= 22000
No of Shares after Conversion = 220000/100 X 5
=       11,000.00
Convertible Bond 9.5%
Interest =200000X9.5%
$ 19,000.00
No of Shares after Conversion = 200000/1000 X 45
=         9,000.00
Convertible Bond 8%
Interest =100000X8%
$     8,000.00
No of Shares after Conversion = 100000/1000 X 32
=         3,200.00
Cumulative Prefferred Stock
Divident =150000X11%
$ 16,500.00
No of Shares after Conversion = 150000/100 X 5
=         7,500.00

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

At December 31, 2016, Novak Corporation had the following stock outstanding. 10% cumulative preferred stock, $100...
At December 31, 2016, Novak Corporation had the following stock outstanding. 10% cumulative preferred stock, $100 par, 108,060 shares $10,806,000 Common stock, $5 par, 4,031,000 shares 20,155,000 During 2017, Novak did not issue any additional common stock. The following also occurred during 2017. Income from continuing operations before taxes $22,200,000 Discontinued operations (loss before taxes) $3,335,000 Preferred dividends declared $1,080,600 Common dividends declared $2,480,000 Effective tax rate 35 % Compute earnings per share data as it should appear in the...
Spartan Co. has the following selected securities outstanding all year: Preferred stock, cumulative, 5%, $100 par,...
Spartan Co. has the following selected securities outstanding all year: Preferred stock, cumulative, 5%, $100 par, 3,000 shares Common stock, $1 par, 18,000 shares Bonds payable, $80,000 value, 7%, convertible into 2,000 shares of common stock Net income for the year is $79,200; the income tax rate is 30%. What is Spartan Co.'s diluted EPS, rounded.? Question 1 options: A. $3.49 B. Bonds are antidilutive C, $3.01 D. $3.41
At the beginning of 2014, Hardin Company had 220,000 shares of $10 par common stock outstanding....
At the beginning of 2014, Hardin Company had 220,000 shares of $10 par common stock outstanding. During the year, it engaged in the following transactions related to its common stock: March 1 Issued 43,000 shares of stock at $20 per share. June 1 Issued a 10% stock dividend. July 1 Issued 16,000 shares of stock at $25 per share. Aug. 31 Issued a 2-for-1 stock split on outstanding shares, reducing the par value to $5 per share. Oct. 31 Reacquired...
Net income $2,350,000, Preferred stock: 52,000 shares outstanding, $100 par, 9% cumulative, not convertible 5,200,000 Common...
Net income $2,350,000, Preferred stock: 52,000 shares outstanding, $100 par, 9% cumulative, not convertible 5,200,000 Common stock: Shares outstanding 1/1 686,400   Issued for cash, 5/1 270,000    Acquired treasury stock for cash, 8/1 148,800    2-for-1 stock split, 10/1 Compute earnings per share:
Impact on EPS, Rankings, and Computations Waseca Company had 5 convertible securities outstanding during all of...
Impact on EPS, Rankings, and Computations Waseca Company had 5 convertible securities outstanding during all of 2016. It paid the appropriate interest (and amortized any related premium or discount using the straightline method) and dividends on each security during 2016. Each of the convertible securities is described in the following table: Security Description 10.2% bonds $200,000 face value. Issued at par. Each $1,000 bond is convertible into 28 shares of common stock. 12.0% bonds $160,000 face value. Issued at 110....
Impact on EPS, Rankings, and Computations Waseca Company had 5 convertible securities outstanding during all of...
Impact on EPS, Rankings, and Computations Waseca Company had 5 convertible securities outstanding during all of 2016. It paid the appropriate interest (and amortized any related premium or discount using the straightline method) and dividends on each security during 2016. Each of the convertible securities is described in the following table: Security Description 10.2% bonds $200,000 face value. Issued at par. Each $1,000 bond is convertible into 28 shares of common stock. 12.0% bonds $160,000 face value. Issued at 110....
Exercise 4-13 At December 31, 2016, Culver Corporation had the following stock outstanding. 10% cumulative preferred...
Exercise 4-13 At December 31, 2016, Culver Corporation had the following stock outstanding. 10% cumulative preferred stock, $100 par, 108,612 shares $10,861,200 Common stock, $5 par, 4,060,980 shares 20,304,900 During 2017, Culver did not issue any additional common stock. The following also occurred during 2017. Income from continuing operations before taxes $24,647,300 Discontinued operations (loss before taxes) $3,285,900 Preferred dividends declared $1,086,120 Common dividends declared $2,248,400 Effective tax rate 35 % Compute earnings per share data as it should appear...
Exercise 4-13 At December 31, 2016, Grouper Corporation had the following stock outstanding. 10% cumulative preferred...
Exercise 4-13 At December 31, 2016, Grouper Corporation had the following stock outstanding. 10% cumulative preferred stock, $100 par, 107,710 shares $10,771,000 Common stock, $5 par, 4,024,000 shares 20,120,000 During 2017, Grouper did not issue any additional common stock. The following also occurred during 2017. Income from continuing operations before taxes $21,850,000 Discontinued operations (loss before taxes) $3,295,000 Preferred dividends declared $1,077,100 Common dividends declared $2,380,000 Effective tax rate 35 % Compute earnings per share data as it should appear...
A Corporation had the following stock as part of its stockholders equity: -7%, $100 par Cumulative...
A Corporation had the following stock as part of its stockholders equity: -7%, $100 par Cumulative Preferred Stock, 45,000 shares authorized, 12,000 shares issued, 10,000 shares outstanding. - $8 par, Common Stock, 250,000 shares authorized, 140,000 shares issued, 110,000 shares outstanding. No dividends were declared in the past two years. In the current year, $300,000 is declared as dividend. The Dividend received by common shareholders will be: a. $90,000 b. $0 c. $216,000 d. $48,000
From the December 31, 2019 balance sheet: Convertible Preferred Stock, 6% cumulative, $100 par value, 100,000...
From the December 31, 2019 balance sheet: Convertible Preferred Stock, 6% cumulative, $100 par value, 100,000 shares authorized, 50,000 shares issued and outstanding. Dividends to preferred shareholders have been declared on schedule. Each preferred share is convertible to 4 shares of common stock (already adjusted for the 5% stock dividend). Common Stock, $1 par, 10,000,000 shares authorized, 2,400,000 shares issued and outstanding. Convertible bonds payable, 6% interest rate, $7,000,000 balance at December 31, 2018, issued at a discount on March...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT