Question

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At January 1, 2018, Canaday Corporation had outstanding the following securities: 760 million common shares 30...

At January 1, 2018, Canaday Corporation had outstanding the following securities:

760 million common shares
30 million 6% cumulative preferred shares, $50 par
7% convertible bonds, $3,000 million face amount, convertible into 90 million common shares

The following additional information is available:

On September 1, 2018, Canaday sold 81 million additional shares of common stock.

Incentive stock options to purchase 50 million shares of common stock after July 1, 2017, at $10 per share were outstanding at the beginning and end of 2018. The average market price of Canaday’s common stock was $20 per share during 2018.

Canaday's net income for the year ended December 31, 2018, was $1,540 million. The effective income tax rate was 40%.

Required:
1. & 2. Calculate basic and the diluted earnings per common share for the year ended December 31, 2018.

Numerator Denominator Earnings Per share
Basic 1450 (correct) 787 (correct) 1.84 (correct)
Diluted 1576 (correct) ??? ???
See below

****Diluted: Please calculate the Numerator. Thanks!

Solutions

Expert Solution

Answer:

Denominator for calculation of Diluted EPS

Weighted average Share = 787 ( as calculated for Basic EPS)

Stock option:

Proceeds received on stock option exercise = 50million * $10 = $500million

Shares repurchased = $500million / $20   = 25million

Net increase in shares outstanding = 50million – 25million

                                                               = 25 million

Convertible shares:

Additional shares on conversion = 90 million

Total shares outstanding for Dilutive EPS = 787 + 25 + 90

                                                                        = 902 million shares

Dilutive EPS = 1576 / 902

                        = $1.75 per share

ekkarill92 answered 1 year ago
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