The following data for Garrison Inc. for 2019 is available: Net Income...........................................................................................$1,800,000 Transactions in Common Shares...

The following data for Garrison Inc. for 2019 is available:

Net Income...........................................................................................$1,800,000

Transactions in Common Shares

1/1/19 Beginning number of shares outstanding 600,000

3/1/19 Purchase of treasury shares 50,000

6/1/19 15% stock dividend

11/1/19 Issuance of shares for cash 80,000

Throughout 2019, the company also had 10,000 shares of 6%, $50 par value cumulative convertible preferred stock issued and outstanding. Each share of preferred stock is convertible into 10 shares of common stock (adjusted for the stock dividend).

1. Compute the basic earnings per share for 2019.

2. Compute the diluted earnings per share for 2019.

Solutions

Expert Solution

Weighted Average Shares

dates	event	shares outstanding (A)	time fraction	STOCK DIVIDEND RESTATEMENT (C)	weihted Average Shares Outstanding

1/1/2019	(BEGINNING BAL )	600000	(2/12)	1.15	690000
3/1/2019	treaury Stock	50000	(3/12)	1.15	47916.66667
6/1/2019	STOCK DIVIDEND	632500	(5/12)	1	368958.3333
11/1/2019	issued	80000	(2/12)	1	13333.33333

= 690000 - 47917 + 368958 + 13334

= 1024375

Basic EPS=

(Net income – preference dividend ) / Average outstanding shares

Net income = 1800000

Common Shares outstanding = 1024375

Preference dividend = 10000 * 50 * 6%

= $ 30000

Basic Eps = (1800000-30000)/ 1024375

= 1.72 per share

Diluted EPS

=Net income after giving effect to diluted share / (Average outstanding shares + Diluted shares)

dilued Shares = 10000 * 10 ( each preference Share converted into 10 Shares )

= 100000 Shares

Diluted Eps = 1800000 / ( 1024375 + 100000 )

= 1.6 per Share

ekkarill92 answered 1 year ago

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