At January1,2013 Myco Corporation had outstanding the following securities: $1,0
ID: 2426375 • Letter: A
Question
At January1,2013 Myco Corporation had outstanding the following securities: $1,000,000, 5% cumulative convertible preferred shares,$50 par; each share is convertible into 2 shares of common stock. 7% convertible bonds, $2,000,000 face value issued at par ($1,000) per bond. Each bond is convertible into 30 shares of common stock $6,000,000 common stock, $10 par value Additional information: a. On April 1, 2013, Myco purchased 100,000 shares of its common stock as treasury stock. b. June 30, 2013, Myco issued a 4%stock dividend c. On October 31, 2013, 50,000 shares of treasury stock were sold. d. Common stock option outstanding as of 12/31/12 and exercisable in 2013 to purchase 40,000shares at an exercise price of $30 e. The market price of the stock peaked on October 31,2013 at $50 an on December 31, 2013 the market price of the stock closed at $30,; the average market price of stock during 2013 was $40 f. Net income for the year ended December 31, 2013 was $1,500,000 g. The income tax rate for 2013 was 40% Required: 1.Compute Myco ‘s basic earnings per share for the year ended December 31, 2013. 2. Compute Myco’s diluted earnings per share for the year ended December 31, 2013.
Explanation / Answer
At January1,2013 Myco Corporation had outstanding the following securities: $1,000,000, 5% cumulative convertible preferred shares,$50 par; each share is convertible into 2 shares of common stock. 7% convertible bonds, $2,000,000 face value issued at par ($1,000) per bond. Each bond is convertible into 30 shares of common stock $6,000,000 common stock, $10 par value
a. On April 1, 2013, Myco purchased 100,000 shares of its common stock as treasury stock.
c. On October 31, 2013, 50,000 shares of treasury stock were sold
d. Common stock option outstanding as of 12/31/12 and exercisable in 2013 to purchase 40,000shares at an exercise price of $30
e. The market price of the stock peaked on October 31,2013 at $50 an on December 31, 2013 the market price of the stock closed at $30,; the average market price of stock during 2013 was $40
f. Net income for the year ended December 31, 2013 was $1,500,000
Required: 1.Compute Myco ‘s basic earnings per share for the year ended December 31, 2013. 2. Compute Myco’s diluted earnings per share for the year ended December 31, 2013.
Myco ‘s basic earnings per share for the year ended December 31, 2013
Basic earning per share = (Net income - Preferred Dividend)/Weighted average common shares oustanding
Myco’s diluted earnings per share for the year ended December 31, 2013.
Diluted EPS = ((Net income – Preferred dividends) + Interest savings (net of tax))/(Average common shares + Potentially dilutive common shares)
Preferred stock is not assumed converted since conversion would be antidilutive.
At January1,2013 Myco Corporation had outstanding the following securities: $1,000,000, 5% cumulative convertible preferred shares,$50 par; each share is convertible into 2 shares of common stock. 7% convertible bonds, $2,000,000 face value issued at par ($1,000) per bond. Each bond is convertible into 30 shares of common stock $6,000,000 common stock, $10 par value
Additional information:a. On April 1, 2013, Myco purchased 100,000 shares of its common stock as treasury stock.
b. June 30, 2013, Myco issued a 4%stock dividend .c. On October 31, 2013, 50,000 shares of treasury stock were sold
d. Common stock option outstanding as of 12/31/12 and exercisable in 2013 to purchase 40,000shares at an exercise price of $30
e. The market price of the stock peaked on October 31,2013 at $50 an on December 31, 2013 the market price of the stock closed at $30,; the average market price of stock during 2013 was $40
f. Net income for the year ended December 31, 2013 was $1,500,000
g. The income tax rate for 2013 was 40%Required: 1.Compute Myco ‘s basic earnings per share for the year ended December 31, 2013. 2. Compute Myco’s diluted earnings per share for the year ended December 31, 2013.
Myco ‘s basic earnings per share for the year ended December 31, 2013
Basic earning per share = (Net income - Preferred Dividend)/Weighted average common shares oustanding
Net Income $1,500,000 less preferred dividend ($1,000,000 x 5%) -$50,000 $1,450,000 Common stock =$6,000,000/$10 600000 shares Basic EPS = $1,450,000/600,000 $2.42 per shareMyco’s diluted earnings per share for the year ended December 31, 2013.
Diluted EPS = ((Net income – Preferred dividends) + Interest savings (net of tax))/(Average common shares + Potentially dilutive common shares)
Net Income $1,500,000Preferred stock is not assumed converted since conversion would be antidilutive.
-$50,000 Bond's interest = $2,000,000 x7% x(1-40%) -$84,000 $1,366,000 Common stock =$6,000,000/$10 600,000 shares Convertible Bonds into Shares = $2000000/$1000 x 30 shares 60000 shares Stock dividend = 600,000x 4% 24000 shares Stock options =( ($40-$30)/$40) x40,000 10000 shares Treasury stock Purchased -100000 shares Treasury stock resold 50000 shares Weighted-Average Common Shares for Fiscal Year of 2013 644,000 shares Diluted EPS = $13,66,000/644000 shares $2.1211 per shareRelated Questions
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