At January 1, 2018, Canaday Corporation had outstanding the following securities

Question

At January 1, 2018, Canaday Corporation had outstanding the following securities:

760 million common shares
30 million 6% cumulative preferred shares, $50 par
7% convertible bonds, $3,000 million face amount, convertible into 90 million common shares

The following additional information is available:

On September 1, 2018, Canaday sold 81 million additional shares of common stock.

Incentive stock options to purchase 50 million shares of common stock after July 1, 2017, at $10 per share were outstanding at the beginning and end of 2018. The average market price of Canaday’s common stock was $20 per share during 2018.

Canaday's net income for the year ended December 31, 2018, was $1,540 million. The effective income tax rate was 40%.

Required:
1. & 2. Calculate basic and the diluted earnings per common share for the year ended December 31, 2018.

****Diluted: Please calculate the Numerator. Thanks!

Numerator Denominator Earnings Per share Basic 1450 (correct) 787 (correct) 1.84 (correct) Diluted 1576 (correct) ??? ??? See below

Explanation / Answer

Answer:

Denominator for calculation of Diluted EPS

Weighted average Share = 787 ( as calculated for Basic EPS)

Stock option:

Proceeds received on stock option exercise = 50million * $10 = $500million

Shares repurchased = $500million / $20   = 25million

Net increase in shares outstanding = 50million – 25million

                                                               = 25 million

Convertible shares:

Additional shares on conversion = 90 million

Total shares outstanding for Dilutive EPS = 787 + 25 + 90

                                                                        = 902 million shares

Dilutive EPS = 1576 / 902

                        = $1.75 per share

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