Assume that the following data relative to Dakota Company for 2015 is available:

Question

Assume that the following data relative to Dakota Company for 2015 is available: Net Income $2,500,000 Jan. 1, 2015, Beginning number of Common Shares 600,000 Transactions in Common Shares in 2015 On February 1, the corporation purchased on the market 100,000 of its own outstanding shares. On May 1, the corporation declared and issued a 2-for-1 stock split. On August 1, the corporation issued 200,000 new shares to raise additional capital. On November 1, the corporation issued a 10% stock dividend. The following dilutive securities were issued prior to 2015. 10% Cumulative Convertible Preferred Stock Sold at par, convertible into 300,000 shares of common $1,500,000 Stock Options Exercisable at the option price of $10 per share. Average market price in 2015, $30 60,000 shares 6% Convertible Bonds 3,000 bonds ($1,000 each) sold at par. Each bond is convertible into 20 shares of common stock. $3,000,000 Tax rate is 40% in year 2015. 1. Compute the weighted average shares outstanding during the year 2015.

*Can you explain how we get fraction of year and split

Explanation / Answer

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Giving weighted average no of share for Basic and Dilutive both. Get back to me in comment post if need any clarification.

1 Change Final Period in month Ratio (period/12) Average number of outstanding shares (Final*Ratio) Jan 1 Beginning 600000 1                            0.08 50000 Feb 1 Purchased -100000 500000 3                            0.25 125000 May 1 Split 2 for 1 500000 1000000 3                            0.25 250000 Aug 1 New 200000 1200000 3                            0.25 300000 Nov 1 Stock Dividend 120000 1320000 2                            0.17 220000 12 945000 2 Basic Earning Per Share (Net income-Preferred Dividend)/weighted average no of shares Basic Earning Per Share (2500000-150000)/945000 Basic Earning Per Share                                                                                       2.49 Preferred Dividend 1500000*10%=150000 3 Additional share for the purpose of Dilluted earning per share 10% convertible preferred stock 300000 Stock Option: Proced from exercise 6000*10 60000 Value in current share 60000/30 2000 Additional Share on stock option 6000-2000 4000 6% Convertible Bond 3000*20 60000 Total Additional shares for Dilluted EPS 364000 Dilluted EPS: Net After tax income 2500000 Add: back interest on bond 3000000*6% 180000 Less: Income Tax 40% 180000*40% 72000 Net income for Dilluted EPS 2608000 Diluted EPS 2608000/(945000+364000 additional share) Diluted EPS                      1.99

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