In: Accounting
Eastwind Corp. had $1,000,000 net income in 2015. On January 1, 2015 there were 200,000 shares of common stock outstanding. On April 1, 20,000 shares were issued and on September 1, Adcock bought 30,000 shares of treasury stock. On October 1, the company declared a two-for-one stock split. On December 1, 20% stock dividend was issued. There are 30,000 options to buy common stock at $40 a share outstanding. The market price of the common stock averaged $50 during 2015. The tax rate is 40%.
During 2015, there were 40,000 shares of convertible cumulative preferred stock outstanding. The preferred is $100 par, pays $3.50 per share a year dividend, and is convertible into one share of common stock.
Eastwind issued $2,000,000 of 8% convertible bonds at face value on July 1, 2015. Each $1,000 bond is convertible into 30 shares of common stock.
Instructions
Compute the basic and diluted earnings per share for 2015. Hand write work.
First step is adjustment of stock for stock dividend and stock split |
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Date |
Particulars |
Number of share |
Adjustment for stock split |
Adjustment for stock dividend |
Adjusted number of share |
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01-Jan-15 |
Share at beginning |
200000 |
2 |
1.2 |
480000 |
200000*2*1.2 |
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01-Apr-15 |
Issued of share |
20000 |
2 |
1.2 |
48000 |
20000*2*1.2 |
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01-Sep-15 |
Treasury stock buy |
30000 |
2 |
1.2 |
72000 |
30000*2*1.2 |
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Weighted average number of share outstanding |
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Date |
Particulars |
Adjusted number of share |
Number of month held out of 12 month |
Weighted average |
Remarks |
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01-Jan-15 |
Share at beginning |
480000 |
12/12 |
480000 |
480000*12/12 |
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01-Apr-15 |
Issued of share |
48000 |
9/12 |
36000 |
48000*9/12 |
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01-Sep-15 |
Treasury stock buy |
72000 |
4/12 |
24000 |
72000*4/12 |
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Weighted average number of share outstanding |
540000 |
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Net income |
1000000 |
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Less: dividend to preferred stock (40000*3.50) |
140000 |
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Earning available for common stock holders |
860000 |
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Weighted average number of share outstanding |
540000 |
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Basic EPS ( earning available for common stock holders / weighted average number of share outstanding) |
$ 1.59 |
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Now, we can calculate number of share for options for diluted EPS |
|
Market value of options (30000*50) |
1500000 |
Less: exercise value of option (30000*40) |
1200000 |
Value of option |
300000 |
Number of share for options for diluted EPS (300000/50) |
6000 |
Number of share for convertible preferred stock for diluted EPS |
|
Number of preferred stock |
40000 |
Convertible ratio |
1/1 |
Number of share for convertible preferred stock for diluted EPS (40000*1/1) |
40000 |
preferred dividend added back to earning available for common stock holders for calculation of diluted EPS |
|
Number of share for convertible bonds for diluted EPS |
|
Number of bond (2000000/1000) |
2000 |
Convertible ratio |
30/1 |
Number of share for convertible bonds for diluted EPS (2000*30) |
60000 |
Adjusted interest on bond added back to earning available for common stock holders for calculation of diluted EPS |
|
Interest on bond (2000000*8%) |
160000 |
Less: tax on interest (160000*40%) |
64000 |
Adjusted interest on bond after tax |
96000 |
Earning |
Number of share |
|
Common stock |
860000 |
540000 |
Options |
0 |
6000 |
Convertible preferred stock |
140000 |
40000 |
Convertible bond |
96000 |
60000 |
Total |
1096000 |
646000 |
Diluted EPS (1096000/646000) |
$ 1.70 |