Question

Earning per share

1. Burns Company reported $752.4 million in net income in 2018. On January 1, 2018, the company had 400 million shares of common stock outstanding. On March 1, 2018, 24 million new shares of common stock were sold for cash. On June 1, 2018, the company's common stock split 2 for 1. On July 1, 2018, 8 million shares were reacquired as treasury stock.

Required: Compute Burns' basic earnings per share for the year ended December 31, 2018.

2. During 20x1, Ellis Corp. had 370,000 shares of $20 par common stock outstanding. On January 1, 20x1, 2,000 bonds (stated rate, 8%) were issued with a maturity value of $1,000 each. To enhance the bond sale, the company offered a conversion of 50 shares of common stock for each bond at the option of the purchaser. Net income for 20x1 was $464,000. The income tax rate was 30 percent. Compute the diluted earnings per share.

3. Venz Company’s net income for 20x1 is $50,000. The only potentially dilutive securities outstanding were 1,000 options issued during 20x0, each exercisable for one share at $6. None has been exercised, and 10,000 shares of common were outstanding during 20x1. The average market price of Venz’s stock during 20x1 was $20.

1) Compute diluted EPS for 20x1.

2) Assume the same facts as those for Part 1), except that the 1,000 options were issued on October 1, 20x1 (rather than in 20x0). The average market price during the last three months of 20x1 was $20.

Answer 1

ANSWER

1)

Weighted average number of shares = ((400 million * 2) + (24 million *10/12 * 2)) - (8 million * 6/12)

Weighted average number of shares = 836 Million

Earning per share = Net income / Weighted average number of shares

Earning per share = $752.4 million / 836 million

Earning per share = $0.90 per share

2)

Diluted EPS = ($464,000 + $160,000 - $48,000) / (370,000 + 100,000)
= $576,000 / 470,000
= $1.23 (rounded)

3)

Diluted EPS= Net Income/Avg common stock outstanding+potential common stock
50000/(10000+701)	$4.67
If options are excerised 1000*6	6000
6000/20.1= 298.5 shares can be purchased
so dilutive shares are
1000-299	701
ans 2
Diluted EPS
50000/(10000+525)	$4.75
If issued on October 1
Dilutive potential shares 700*9/12	525
If options are excerised 1000*6
6000/20= 300 shares can be purchased
so dilutive shares are
1000-300	700
If any doubt please comment

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