Assume that the following data relative to Kane Company for 2018 is available Ne

Question

Assume that the following data relative to Kane Company for 2018 is available Net Income $2,830,000 Transactions in Common Shares Jan. 1, 2018, Beginning number Mar. 1, 2018, Purchase of treasury shares June 1, 2018, Stock split 2-1 Nov. 1, 2018, Issuance of shares (50,400) 639,600 246,000 Change Cumulative 690,000 639,600 1,279,200 1,525,200 6% Cumulative Convertible Preferred Stock Sold at par, convertible into 210,000 shares of common (adjusted for split) $1,050,000 Stock Options Exercisable at the option price of $25 per share. Average market price in 2018, $30 (market price and option price adjusted for split) 96,000 shares Compute weighted average shares outstanding for 2018 Weighted average shares outstanding Compute the basic earnings per share for 2018. (Round answer to 2 decimal places, e.g. 52.75.) Basic earnings per share d Compute the diluted earnings per share for 2018. (Round answer to 2 decimal places, e.g. 52.75.) Diluted earnings per share

Explanation / Answer

Ans. Calculation of Weigted Average No of share for 2018

No of share after spliting                     = 1279200

Weighted average no of share                        = 20500

issued on Nov 2018 (246000X1/12)

Total Weighted No of share oustanding dec 2018 = 1299700

Net Income for the year of 2018   = 2830000

Less; Preference share dividend = 63000

(1050000X.06)

Net income for Equity                   = 2767000

Basic Earning per share   = 2767000/1299700 = 2.13 per share

Calculation of diluted earning per share for 2018

Step 1 : Calculation of Diluted Earning

Net income avialble for equity = 2767000

Add: Dividend for preference share    = 63000

Diluted earning                             = 2830000

Step: 2 Calculation of Diluted no of share

Percentage of free option = 5/30X100 = 1/6

Share issued for no consideration = 96000/6 = 16000

Calculation of Diluted EPS

Weighted average common share                                  = 1299700

Add: convertable common share                                    = 210000

Add: Stock option(share issued without consideration)    = 16000

Total diluted no of share                                                 = 1525700

Diluted Earning per share = Diluted earning/diluted no of share

                                         = 2830000/1525700 = 1.85 per share

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