Exercise 16-23 On June 1, 2012, Andre Company and Agassi Company merged to form

Question

Exercise 16-23

On June 1, 2012, Andre Company and Agassi Company merged to form Lancaster Inc. A total of 903,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis.

On April 1, 2014, the company issued an additional 692,000 shares of stock for cash. All 1,595,000 shares were outstanding on December 31, 2014.

Lancaster Inc. also issued $892,000 of 20-year, 9% convertible bonds at par on July 1, 2014. Each $1,000 bond converts to 48 shares of common at any interest date. None of the bonds have been converted to date.

Lancaster Inc. is preparing its annual report for the fiscal year ending December 31, 2014. The annual report will show earnings per share figures based upon a reported after-tax net income of $1,633,000. (The tax rate is 40%.)

Determine the following for 2014.

(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.)

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Explanation / Answer

A./

1./ NUMBER OF SHARE USED FOR CALCULATING BASIC EARNNING PER SHARE IS 1595000

2./ NUMBER OF SHARE USED FOR CALCULATING DILUTED EARNNING PER SHARE IS

= 1595000 + [($892000 / $1000) * 48]

= 1595000 + 42816

= 1637816

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B./

1./ EARNNING FIGURE USED TO CALCULATE BASIC EARNNING PER SHARE IS $1633000

2./ EARNNING FIGURE USED TO CALCULATE BASIC EARNNING PER SHARE IS

= $1633000 + ($892000 * 9%) * (1 - TAX RATE)

= $1633000 + $80280 * (1 - 0.40)

= $1633000 + 40168

= $1681168

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