For 2013, Behrend Corp. originally reported basic EPS of $2.00 and diluted EPS o
ID: 2574740 • Letter: F
Question
For 2013, Behrend Corp. originally reported basic EPS of $2.00 and diluted EPS of $1.80. At the end of 2014, Behrend distributed a 2 for 1 stock split. In reporting the 2013, comparative amounts in the 2014 annual report, the basic and diluted EPS amounts will be respectively reported at:
Throughout 2014, Behrend Corporation had 900,000 shares of common stock and 50,000 shares of $6 nonconvertible preferred stock outstanding. Behrend declared and paid the annual cash dividend of $300,000 to preferred shareholders during 2014.
On January 1, 2014, Behrend issued $2,000,000 of convertible 5% bonds at face value. Each $1,000 bond is convertible into 20 common shares, but none were converted during 2014.
Behrend’s net income for the year ended December 31, 2014, was $3.9 million. The income tax rate is 40%, and Behrend reported no below-the-line items.
What is Behrend’s basic earnings per share for 2014, rounded to the nearest cent?
None of these is correct.
Throughout 2014, Behrend Corporation had 900,000 shares of common stock and 50,000 shares of $6 nonconvertible preferred stock outstanding. Behrend declared and paid the annual cash dividend of $300,000 to preferred shareholders during 2014.
On January 1, 2014, Behrend issued $2,000,000 of convertible 5% bonds at face value. Each $1,000 bond is convertible into 20 common shares, but none were converted during 2014.
Behrend’s net income for the year ended December 31, 2014, was $3.9 million. The income tax rate is 40%, and Behrend reported no below-the-line items.
What will Behrend report as diluted earnings per for 2014, rounded to the nearest cent?
$3.83
$2.00/share, $1.80/shareExplanation / Answer
Answer:
EPS = Net earnings/ common outstanding stock
after stock split of 2 to 1 now common share outstanding will double leading to half of EPS
new EPS would be $1.00/share and $0.9/share
Option B is the answer
Answer 2:
Basic EPS = net income - preffered share outstanding/ common shares outstanding
Net income = 3.9 million - 300000 = 3600000
Basic EPS = 3600000/900000
Basic EPS = $4.00 / share
Option B is the answer
Answer 3:
Diluted EPS : Net income/ (Common shares + outstanding shares)
Net income = 3900000 - 300000 - 20000*0.05(1-0.4) = 3660000
Convertible shares = (2000000/1000 )*20 =40000
Tota outstanding shares 900000 + 40000 = 940000
Diluted EPS = 3660000/940000 = $3.89/share
option B is the answer
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