Question
Net income for 2009 560 million
Bonds Payable ,10% convertible into 36 million shares of common stock 300 million
Common stock
Shares outstanding on January 1 400 million
Treasury shares purchased for cash on September 1 30 million
The bonds payable were issued at par in 2007 .The tax rate for 2009 was 405
Compute basic and diluted earning per share for the year ended Dec 31,2009
Explanation / Answer
Net income for 2009 = 560 Million Tax 40 % = 560 *40% Tax = 224 Net income after Tax = 560 - 224 Net income after Tax = 336 Million Shares on January = 400 Million Earning per Share = Net income / Number of shares out standing = 336 / 400
Basic Earning per Share = 0.84 After Bonds Convertion Net income after Tax = 336 Million Shares on January = 400 Million Convertible Bonds = 36 Million Total shares out standing = 436 Million Earning per Share = Net income / Number of shares out standing = 336 / 436
= 0.77 After Treasury Shares Purchase Net income after Tax = 336 Million Total shares out standing = 436 Million Less: Treasury Stock = 30 Million Total shares out standing = 406 Million Earning per Share = Net income / Number of shares out standing = 336 / 406
Dailuted Earning per Share = 0.828 Note: I treated 40% tax rate. Thank you.... Net income for 2009 = 560 Million Tax 40 % = 560 *40% Tax = 224 Net income after Tax = 560 - 224 Net income after Tax = 336 Million Shares on January = 400 Million Earning per Share = Net income / Number of shares out standing = 336 / 400
Basic Earning per Share = 0.84 After Bonds Convertion Net income after Tax = 336 Million Shares on January = 400 Million Convertible Bonds = 36 Million Total shares out standing = 436 Million Earning per Share = Net income / Number of shares out standing = 336 / 436
= 0.77 After Treasury Shares Purchase Net income after Tax = 336 Million Total shares out standing = 436 Million Less: Treasury Stock = 30 Million Total shares out standing = 406 Million Earning per Share = Net income / Number of shares out standing = 336 / 406
Dailuted Earning per Share = 0.828