Question

On June 1, 2018, Waterway Company and Wildhorse Company merged to form Sheffield Inc. A total of 769,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis. On April 1, 2020, the company issued an additional 599,000 shares of stock for cash. All 1,368,000 shares were outstanding on December 31, 2020. Sheffield Inc. also issued $600,000 of 20-year, 8% convertible bonds at par on July 1, 2020. Each $1,000 bond converts to 36 shares of common at any interest date. None of the bonds have been converted to date. Sheffield Inc. is preparing its annual report for the fiscal year ending December 31, 2020. The annual report will show earnings per share figures based upon a reported after-tax net income of $1,688,000. (The tax rate is 20%.) Determine the following for 2020. (a) The number of shares to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.) (1) Basic earnings per share enter a number of shares rounded to 0 decimal placesEntry field with incorrect answer 1.39 shares (2) Diluted earnings per share enter a number of shares rounded to 0 decimal placesEntry field with incorrect answer 4800 shares (b) The earnings figures to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.) (1) Basic earnings per share $enter a dollar amount rounded to 0 decimal placesEntry field with incorrect answer 1.78 (2) Diluted earnings per share

Answer 1

ANSWER

a. 1.
Dates	shares	weight	weighted shares
Jan 1,2020-Apr 1,2020	769,000	1/4	192,250
Apr 1,2020 - Dec 31,2020	1,368,000	3/4	1,026,000
			1,218,250
a. 2.
Date	shares	weights	weighted shares
Jan 1,2020 - Apr 1,2020	769,000	1/4	192,250
Apr 1,2020 - July 1,2020	1,368,000	1/4	342,000
July 1,2020 - Dec 31,2020	1,389,600	1/2	694,800
(600000÷1000×36=21600) additional shares
			1,229,050
b.1.
Basic
Net income=$1,688,000
b. 2.
Diluted:
Net income=$1,688,000
Add Interest savings(600,000×8%×6/12)=$24,000
Less additional tax(20%×24000)=$4,800
Adjusted net income=$1,707,200

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