On December 31, 2012, Dow Steel Corporation had 690,000 shares of common stock a
ID: 2646934 • Letter: O
Question
On December 31, 2012, Dow Steel Corporation had 690,000 shares of common stock and 39,000 shares of 9%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 5% common stock dividend on May 15 and paid cash dividends of $490,000 and $78,000 to common and preferred shareholders, respectively, on December 15, 2013.
On February 28, 2013, Dow sold 56,000 common shares. In keeping with its long-term share repurchase plan, 5,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2013, was $2,550,000. The income tax rate is 40%.
As part of an incentive compensation plan, Dow granted incentive stock options to division managers at December 31 of the current and each of the previous two years. Each option permits its holder to buy one share of common stock at an exercise price equal to market value at the date of grant and can be exercised one year from that date. Information concerning the number of options granted and common share prices follows:
Compute Dow's earnings per share for the year ended December 31, 2013. (Do not round intermediate calculations and round your final answers to 2 decimal places.)
On December 31, 2012, Dow Steel Corporation had 690,000 shares of common stock and 39,000 shares of 9%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 5% common stock dividend on May 15 and paid cash dividends of $490,000 and $78,000 to common and preferred shareholders, respectively, on December 15, 2013.
On February 28, 2013, Dow sold 56,000 common shares. In keeping with its long-term share repurchase plan, 5,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2013, was $2,550,000. The income tax rate is 40%.
As part of an incentive compensation plan, Dow granted incentive stock options to division managers at December 31 of the current and each of the previous two years. Each option permits its holder to buy one share of common stock at an exercise price equal to market value at the date of grant and can be exercised one year from that date. Information concerning the number of options granted and common share prices follows:
Explanation / Answer
Answer:
Calculation showing earning per share for Dow Steel Corporation:
690,000 shares
(not in $)
Particulars Amount($) Net Income 2,550,000 (-) Tax @40% 1,020,000 Income available for preference shareholders 1,530,000 (-) Preference Dividend 78,000 Income available for Equity Shareholders (a) 1,452,000 (-) Equity Dividend Paid 490,000 Net Income Available to Equity Shareholders... (A) 962,000 No. of Equity Shares (B)690,000 shares
(not in $)
Earning Per Share = (A/B) 1.39 Equity Dividend on Options given to division managers (5% of options given in gthe year 2012) (As options are eercised one year after the date of grant) (5%*11,000*33) (C) 18,150 Net Income available to equity share holders when options are exercised (A-C) (D) 943,850 Diluted Earning per share = (D/69000+11000) 1.34Related Questions
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