Francis company has 21,600 shares of common stock outstanding at the beginning o

Question

Francis company has 21,600 shares of common stock outstanding at the beginning of 2013. Francis issued 2,700 additional shares on may 1 and 1,800 additional shares on September 30. It also has been two convertible securities outstanding at the end of 2013. These are:
1. Convertible preferred stock: 2,250 shares of 8.0%, $50 par, preferred stock were issued on January 2, 2010, for $60 per share. Each of preferred stock is convertible into 3 shares of common stock. current dividends has been declared and paid. To date, no preferred stock has been converted.
2. Convertible bonds: bonds with a face value of $225,000 and an interest rate of 6.0% were issued at par in 2012. Each $1,000 bond is convertible into 25 shares of common stock. To date, no bonds have been converted.

Francis earned net income of $75,000 during 2013. The income tax rate is 30%.

Required:

1. compute the number of shares of common stock that Francis should use in calculating basic earnings pet share for 2013.

Weighted average shares outstanding= --------- shares

2. calculate basis earnings per share for 2013. If required, round your answer to the nearest cent.

Basic earnings per share=$-------

3. Calculate diluted earnings per share for 2013 and the incremental EPS of the preferred stock and convertible bonds. If required, round your answer to the nearest cent.

incremental EPS:

Bonds=$-------
preferred =$-------

4. Assume the same facts as above except that net income included a loss from discounted operations of $12,900 net of income taxes. compute basis EPS. You do not have to calculate diluted EPS for this case. If required, round your answer to the nearest cent.

Basic EPS=$--------

4b. shoe how the basic EPS you calculated should be reported to shareholders. you do not have to calculate diluted EPS

Explanation / Answer

There are many parts in the given question but I am answering only first 4 parts.

(1) Weighted average shares outstanding = Shares at beginning + shares at end / 2

21600 + 26100 / 2 = 23850 shares.

(2) Weighted average shares outstanding = Net Income / Weighted average shares outstanding.

= $75000 / 23850 = $3.14 per share.

(3) Diluted earnings per share = ($75000 + $10800 + $9450) / (23850 + 6750 + 5625) = $95250 / 36225

= $2.63 per share.

(4) Loss from discounted operations of $12,900 will be added back to net income after making adjustment for income tax.

75000 x 100 / 70 = ($107142.86 + $12900) x 70 / 100 = $84030

Thus Basic EPS = $84030 / 23850 = $3.52 per share.

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