Problem 16-5 Amy Dyken, controller at Buffalo Pharmaceutical Industries, a publi
ID: 2401176 • Letter: P
Question
Problem 16-5
Amy Dyken, controller at Buffalo Pharmaceutical Industries, a public company, is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for Buffalo’s financial statements. Below is selected financial information for the fiscal year ended June 30, 2017.
BUFFALO PHARMACEUTICAL INDUSTRIES
SELECTED BALANCE SHEET
INFORMATION
JUNE 30, 2017
$1,020,000
5,020,000
6,120,000
$12,160,000
$1,212,500
990,000
4,050,000
5,980,000
$12,232,500
The following transactions have also occurred at Buffalo.
For the fiscal year ended June 30, 2017, calculate the following for Buffalo Pharmaceutical Industries. (Round answers to 2 decimal places, e.g. $2.45.)
(a) Basic earnings per share.
(b) Diluted earnings per share.
Open Show Work
BUFFALO PHARMACEUTICAL INDUSTRIES
SELECTED BALANCE SHEET
INFORMATION
JUNE 30, 2017
$1,020,000
9% convertible bonds payable5,020,000
11% bonds payable6,120,000
Total long-term debt$12,160,000
Shareholders’ equity Preferred stock, 5% cumulative, $50 par value, 97,000 shares authorized, 24,250 shares issued and outstanding$1,212,500
Common stock, $1 par, 9,900,000 shares authorized, 990,000 shares issued and outstanding990,000
Additional paid-in capital4,050,000
Retained earnings5,980,000
Total shareholders’ equity$12,232,500
Explanation / Answer
(Net Income - Preferred Dividends) /Avg. shares outstanding
Here, Net Income and Avg. Shares outstanding has already been provided.
For Preference dividend
= Preference Capital * Percentage of interest
= 1,212,500*5%
= $ 60,625
Therefore, Basic Earning Per Share
= (1,480,000 – 60,625) / 990,000 = $1.43
{Net Income-Preference dividend + Convertible preference dividend + convertible debt interest (1-T)} divided by (Weighted average shares + converted preference shares + Shares from converted debt)
Net Income is already provided
Preference Dividend is $60,625 (as calculated in part a)
Convertible preference divided = Zero
Convertible debt interest (9% Bonds)
Lets calculated the number of Shares to be issued if conversion is exercised
= (5,020,000 / 1000) * 50 = 251,000 Shares
convertible debt interest =251,000 * 7% = $ 17,570
convertible debt interest (1-T) = 17,570 (1-.4) = $ 10,542
Therefore,
Diluted earnings per share =
= {1,480,000 – 60,625 + 0 + 10,542} divided by (990,000 + 251,000)
= $1,429,917 / 1,241,000 = $1.15