Question

Bragg Corp. had $1,500,000 net income in 2013. On January 1, 2013 there were 200,000 shares of common stock outstanding. On April 1, 25,000 shares were issued and on September 1, Bragg brought 15,000 shares of treasury stock. There are options outstanding to buy 20,000 shares of common stock at $20 a share. The market price of the common stock averaged $25 during 2013. The tax rate is 40%.

         During 2013 there were 20,000 shares of convertible cumulative preferred stock outstanding. The preferred is $100 par, pays $100,000 a year dividend, and is convertible into two shares of common stock.

         Bragg issued $1,500,000 of 10% convertible bonds at face value during 2012. Each $1000 bond is convertible into 20 shares of common stock.

         REQUIRED

        Compute the basic and diluted earning per share for 2013.

Answer 1

Given Information:

a. Net Income for 2013	$1,500,000
b. Weighted No. of Shares for Year Ending	2,13,750
(200,000*12/12) + (25000*9/12) - (15000*4/12)
Opening Outstanding Stock	2,00,000
On April 1, 25,000 shares were issued	25,000
On Sept 1 , Company brought back	15,000
Basic EPS (a/b)	7.02

Diluted EPS

Particulars	Amount $	Amount $
Net Income for 2013		15,00,000
Dividend on Cummulative Preferred Stock		1,00,000
10% Interest on Bonds	1,50,000
Less: Tax saving on Interest above	60,000	90,000
Net Income for calculating Diluted EPS		16,90,000

Calculation of Diluted EPS
Particulars	Earnings	Shares
Net Income for calculating Diluted EPS	16,90,000
Weighted average no. of shares		213750
No. of shares under option		20000
No. of shares that would have issued at fair value (20,000*20/25)		-16000
Outstanding shares of convertible cumulative preferred stock (20,000*2)		40000
Shares issued for Convertible bonds ($1,500,000/$1,000*20)		30000
ToTal	16,90,000	287750

Diluted EPS ($ 1,690,000/ 287,750) = $ 5.87