Basic and diluted EPS. Assume that the following data relative to Kane Company f
ID: 2465610 • Letter: B
Question
Basic and diluted EPS.
Assume that the following data relative to Kane Company for 2015 is available:
Net Income $2,800,000
Transactions in Common Shares Change Cumulative
Jan. 1, 2015, Beginning number 700,000
Mar. 1, 2015, Purchase of treasury shares (60,000) 640,000
June 1, 2015, Stock split 2-1 640,000 1,280,000
Nov. 1, 2010, Issuance of shares 240,000 1,520,000
8% Cumulative Convertible Preferred Stock
Sold at par, convertible into 200,000 shares of common
(adjusted for split). $1,000,000
Stock Options
Exercisable at the option price of $25 per share. Average
market price in 2015, $30 (market price and option price
adjusted for split). 90,000 shares
Instructions
(a) Compute the basic earnings per share for 2015. (Round to the nearest penny.)
(b) Compute the diluted earnings per share for 2015. (Round to the nearest penny.)
Explanation / Answer
EPS=Net Income-Preferred Dividend/Weighted Average common shares outstanding $2800000-(*8%*1000000)/1340000 2.03 Ans Dilutive EPS=Net Income/Weighted Average common shares outstanding+Potential dilutive common stock $2800000-(*8%*1000000)/1340000+15000 2.01 Ans Calculation of weighted nno. Of outstanding shares Shares outstyanding Assumed share outstanding Portion of The year Equivalent shares 1-Jan 700000 700000*2 2/12 months 233333.3 1-Mar 640000 640000*2 3/12 months 320000 1-Jun 1280000 1280000 5/12 months 533333.3 1-Nov 1520000 1520000 2/12 months 253333.3 Total 1340000 Stock split will be considered from 1 January the starting of the year Calculation of potential common stock No.of options *Exercise price 90000 options*25 2250000 Now divide 2250000/$30 (market price) 75000 Potential common stock=90000-75000 15000