Question

The following information is relevant to the computation of Charlie Co.’s earnings per share to be
disclosed on Charlie’s income statement for the year ending December 31, 2020:
 2020 net income: $800,000
 Common shares activity in 2020:
o Shares outstanding at January 1, 2020: 600,000
o Shares issued on May 1, 2020: 24,000
o Treasury shares purchased on July 31, 2020: 60,000
 $5,000,000 face value, 2% 10-year convertible bonds were outstanding on January 1,
2020. Each $1,000 par value bond is convertible into 20 shares of Charlie’s common
stock
 Charlie’s corporate tax rate is 25%
Charlie has no stock options, stock warrants, preferred stock or other convertible securities
outstanding in 2020.

Required
Compute Charlie’s basic and diluted earnings per share for 2020.

Answer 1

a.)	Date	Number of shares	Weight	Weighted average
	Jan.1,2020 _ Balance	600,000	12/12	600,000
	May 1,2020 - Issued	24,000	8/12	16,000
	July 31,2020- Treasury Stock	-60,000	5/12	-25,000
	Total			591,000

Charlie's Basic earnings per share 2020

$ 1.35

=800000/591000

b.)	Earnings for Diluted Earnings per share	$ 875,000	=800000+(5000000*2%*75%)
	Number of Common Stock for convertible bonds	100,000	=(5000000/1000)*20
	Common Stock for Diluted earnings per share	691,000	=591000+100000
	Charlie's Diluted earnings per share 2020	$ 1.27	=875000/691000