Question

Assume that the following data relative to Dakota Company for 2015 is available: Net Income $2,500,000 Jan. 1, 2015, Beginning number of Common Shares 600,000 Transactions in Common Shares in 2015 On February 1, the corporation purchased on the market 100,000 of its own outstanding shares. On May 1, the corporation declared and issued a 2-for-1 stock split. On August 1, the corporation issued 200,000 new shares to raise additional capital. On November 1, the corporation issued a 10% stock dividend. The following dilutive securities were issued prior to 2015. 10% Cumulative Convertible Preferred Stock Sold at par, convertible into 300,000 shares of common $1,500,000 Stock Options Exercisable at the option price of $10 per share. Average market price in 2015, $30 60,000 shares 6% Convertible Bonds 3,000 bonds ($1,000 each) sold at par. Each bond is convertible into 20 shares of common stock. $3,000,000 Tax rate is 40% in year 2015. 1. Compute the weighted average shares outstanding during the year 2015.

*Can you explain how we get fraction of year and split

Answer 1

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Giving weighted average no of share for Basic and Dilutive both. Get back to me in comment post if need any clarification.

1			Change	Final	Period in month	Ratio (period/12)	Average number of outstanding shares (Final*Ratio)
Jan 1	Beginning			600000	1	0.08	50000
Feb 1	Purchased		-100000	500000	3	0.25	125000
May 1	Split	2 for 1	500000	1000000	3	0.25	250000
Aug 1	New		200000	1200000	3	0.25	300000
Nov 1	Stock Dividend		120000	1320000	2	0.17	220000
					12		945000
2
Basic Earning Per Share	(Net income-Preferred Dividend)/weighted average no of shares
Basic Earning Per Share	(2500000-150000)/945000
Basic Earning Per Share	2.49
Preferred Dividend	1500000*10%=150000
3	Additional share for the purpose of Dilluted earning per share
	10% convertible preferred stock			300000
	Stock Option:
	Proced from exercise	6000*10	60000
	Value in current share	60000/30	2000
	Additional Share on stock option	6000-2000		4000
	6% Convertible Bond	3000*20		60000
	Total Additional shares for Dilluted EPS			364000
	Dilluted EPS:
	Net After tax income		2500000
	Add: back interest on bond	3000000*6%	180000
	Less: Income Tax 40%	180000*40%	72000
	Net income for Dilluted EPS		2608000
	Diluted EPS	2608000/(945000+364000 additional share)
	Diluted EPS	1.99