1.Flounder Corporation earned net income of $260,000 in 2017 and had 99,000 shar
ID: 2541095 • Letter: 1
Question
1.Flounder Corporation earned net income of $260,000 in 2017 and had 99,000 shares of common stock outstanding throughout the year. Also outstanding all year was $770,000 of 9% bonds, which are convertible into 19,000 shares of common. Flounder’s tax rate is 30 percent.
Compute Flounder’s 2017 diluted earnings per share. (Round answer to 2 decimal places, e.g. 3.55.)
2.Stellar Corporation reported net income of $181,440 in 2017 and had 45,900 shares of common stock outstanding throughout the year. Also outstanding all year were 5,400 shares of cumulative preferred stock, each convertible into 2 shares of common. The preferred stock pays an annual dividend of $5 per share. Stellar’s tax rate is 50%.
Compute Stellar’s 2017 diluted earnings per share. (Round answer to 2 decimal places, e.g. 3.55.)
3.Cullumber Corporation reported net income of $231,840 in 2017 and had 186,000 shares of common stock outstanding throughout the year. Also outstanding all year were 58,500 options to purchase common stock at $11 per share. The average market price of the stock during the year was $15.
Compute diluted earnings per share. (Round answer to 2 decimal places, e.g. 3.55.)
Explanation / Answer
Net Income 260000 Shares Outstanding 99000 Convertible shares 19000 Diluted EPS (260000/(99000+19000) 2.20 Net income 181440 Shares Outstanding 45900 Convertible Shares (5400*2) 10800 Preferred dividend (5400*5) 27000 Net income after preferred dividend (181440-27000) 154440 Basic EPS (154440/45900) 3.36 Diluted EPS(154440/(45900+27000) 2.12 Net Income 231840 Shares Outstanding 186000 Conversion of options(58500- ((58500*11)/15)) 15600 Total Shares outstanding after Convertion of options (186000+15600) 201600 Diluted EPS (231840/201600) 1.15
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