Exam 20: Earnings Per Share

George Manufacturing had net income of $150,000 and declared preferred dividends of $10,000 during the current year. George began the year with 11,000 common shares outstanding. It issued 60,000 shares on June 30 and repurchased 6,000 of the newly issued shares on November 1. Compute George's basic EPS for the year. (Round your answer to the nearest cent.)

Pennock Inc. has convertible preferred stock outstanding. To compute the diluted EPS, it must adjust ________.

When must a firm use the treasury stock method for earnings per share calculations?

A company with convertible bonds outstanding will assume hypothetical conversion at the earliest point of the year to compute diluted EPS. The numerator is ________.

The treasury stock method is used when the organizational structure includes ________.

Jenks Corp. began the year with 200,000 shares of common stock and 30,000 shares of 7%, $100 par value, cumulative, nonconvertible preferred stock. On March 1 it declared a 5% stock dividend on common shares. On June 30, it purchased 10,000 shares of treasury stock. On October 1, Jenks declared a 2 for 1 stock split. Net income for the year was $650,000. Compute weighted average shares of common stock for the year and basic EPS. Instructions: Write the EPS formula. Show all computations used in your solution.

Colselo has 200,000 common shares outstanding for the year and net income of $500,000. It has issued options to acquire 10,000 shares of common stock and has 20,000 shares of $100, 6% cumulative nonconvertible preferred stock, both of which were outstanding for the entire year. The exercise price for the options is $20 per share and the average market price during the year is $15 per share. Compute basic and diluted EPS.

Robertson Corporation reported net income for Year 1 of $200,000 and Year 2 of $400,000. The weighted-average common shares outstanding 330,000 in Year 1 and 120,000 in Year 2. Robertson also has 10,000 shares of $100 par value, cumulative, 5% preferred stock outstanding in both years. Dividends were not declared in Year 1, but both years' dividends were declared and paid in Year 2. Compute EPS for both years. (Round your answers to the nearest cent.)

Ozarka Products reported $9,500,000 in net income for the current year. The company had $5,000,000 of 7% cumulative, preferred stock outstanding all year, along with, $10,000,000 of 6% bonds. Each $1,000 bond had 4 detachable stock warrants and each warrant allowed the warrant holders to buy a share of stock for $60. The average share price for the year was $80. Common shares outstanding at the beginning of the year was 4,000,000, but on June 15, the company declared a 10% stock dividend. Compute both basic and diluted EPS when the tax rate is 40%.

Carrolton, Inc. has four potentially dilutive securities. Computation of the antidilution sequencing recorded the following: Security Increase in Income Increase in Common Shares Convertible Preferred Stock \ 32,000 12,000 Stock Warrants \ 0 6,000 Stock Options \ 0 (4,000) Convertible Bonds \ 18,000 9,000 What is the correct order of entry into the EPS computation? (Round any calculations to the nearest cent.)

Dynamic Motors, Inc. has two potentially dilutive securities. Loss from continuing operations for the year is $(250,000), income from discontinued operations is $100,000 (net of tax), and the weighted average common shares outstanding is 100,000 shares. Also outstanding during the year are $5,000,000 of 6% bonds convertible into 10,000 shares of common stock. The bonds also have two detachable stock warrants for each bond which allow the bondholder to buy a share of stock for $30. The average market price of Dynamic Motors stock was $28 for the year. The tax rate is 40%. Required: Write the basic equation for EPS and compute basic EPS. Using the order of entry, determine diluted EPS calculations. Show all computations to prepare the appropriate Income Statement presentation of basic and diluted EPS.

For share issuances that occur before a stock split or dividend, the retroactive assumption assumes that the split or dividend occurred at the time of the issuance.

Robertson Corporation reported net income for Year 1 of $220,000 and Year 2 of $340,000. The weighted-average common shares outstanding 140,000 in Year 1 and 130,000 in Year 2. Robertson also has 10,000 shares of $100 par value, cumulative, 5% preferred stock outstanding in both years. Dividends were not declared in Year 1, but both years' dividends were declared and paid in Year 2. Compute EPS for both years. (Round your answers to the nearest cent.)

Terrell Foods reported $910,000 in net income (not considering interest expense) and its weighted-average shares outstanding for the year is 100,000 shares. In prior years it sold $1,500,000 of 8% long-term convertible bonds at par which are still outstanding at the start of the year. The bonds are convertible into 50,000 shares of common stock. The tax rate for all years is 40%. Bondholders convert the bonds on July 1 of the current year. If Terrell has no other potentially dilutive securities and no preferred stock, what are basic and diluted EPS? (Round your final answers to the nearest cent.)

Stock options and stock warrants affect only the denominator of the diluted EPS calculation.

Interurban Company began operations on the first day of the year. On that day they issued 90,000 shares. On March 1 they issued 60,000 shares and on July 1, another 20,000 shares. On December 1, Interurban repurchased 6,000 shares of outstanding shares. Compute basic EPS for the first year of operation if net income was $100,000. (Round number of shares to the nearest whole number, and your final answer to the nearest cent.)

A company with convertible bonds outstanding will need to adjust the denominator of the diluted EPS equation. If the bonds are outstanding all year, the adjustment will consist of the ________.

Describe which potentially dilutive securities require after-tax adjustments to the numerator or denominator of the EPS formula.

Executrain has 50,000, 7%, bonds outstanding for the second half of the year. Each $1,000 bond, sold July 1 at par, is convertible into 10 shares of common stock. The corporate tax rate is 40%. What is the incremental income per common share from the convertible bonds?

Smith Instruments reported $6,000,000 in net income for the current year. The company had $500,000 of 10% cumulative, non-convertible preferred stock outstanding all year, and issued $5,000,000 of 6% convertible bonds on June 1. Each $1,000 bond is convertible into 40 shares of common stock. 400,000 common shares were outstanding all year. Determine the denominator for both basic and diluted EPS when the tax rate is 40%.