Question

In: Accounting

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

=


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