Accounting in Dilutive Securities and Earning per share. On June 1, 2015, Metloc
ID: 2335793 • Letter: A
Question
Accounting in Dilutive Securities and Earning per share.
On June 1, 2015, Metlock Company and Bonita Company merged to form Windsor Inc. A total of 725,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis.
On April 1, 2017, the company issued an additional 616,000 shares of stock for cash. All 1,341,000 shares were outstanding on December 31, 2017.
Windsor Inc. also issued $600,000 of 20-year, 8% convertible bonds at par on July 1, 2017. Each $1,000 bond converts to 40 shares of common at any interest date. None of the bonds have been converted to date.
Windsor Inc. is preparing its annual report for the fiscal year ending December 31, 2017. The annual report will show earnings per share figures based upon a reported after-tax net income of $1,592,000. (The tax rate is 40%.)
Determine the following for 2017.
(a) The number of shares to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)
(b) The earnings figures to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)
Explanation / Answer
a) Number of shares to be used for calculating : 1) Basic earnings per share Dates Shares Weight Weighted shares Jan 1 2017 - Apr 1 2017 725000 03./12 181250 Apr 1 2017 - Dec 1 2017 13410000 09./12 10057500 10238750 Shares 2) Diluted earnings per share : Dates Shares Weight Weighted shares Jan 1 2017 - Apr 1 2017 725000 03./12 181250 Apr 1 2017- jul 1 2017 13410000 03./12 3352500 Jul 1 2017- Dec 1 2017 13434000 06./12 6717000 10250750 Shares No of shares if converted : $ 600,000 /1000 shares * 40 shares 24,000 shares b) Earning figures to be used for calculating : 1) Basic earnings per share Net income $ 15,92,000 2) Diluted earnings per share : Net income 1592000 Add: interest savings 24000 (600000*8/100*1/2) Less: Additional tax 9600 (24000*40%) Adjusted Net income 1606400
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