Information from the financial statements of several companies included the foll
ID: 2466813 • Letter: I
Question
Information from the financial statements of several companies included the following: Company Painted Box Corp Carved Candle Inc Colorful Paper Co Inc Very Trying Ltd Common shares 5,000 10,000 6,000 4,000 Par $ 1 $ 1 $ 3 $ 3 Capital $ 5,000 $ 10,000 $ 18,000 $ 12,000 Paid in capital-excess of par $15,000 $ 20,000 $ 24,000 $ 20,000 Convertible Preferred shares 100 100 100 100 Par $100 $100 $ 100 $100 Capital $ 10,000 $ 10,000 $ 10,000 $ 10,000 Rate 6% 8% 10% 9% Convertible into # shares of common 300 300 500 400 Convertible bonds Par $ 10,000 $ 10,000 $ 10,000 $ 10,000 Interest rate 12% 10% 9% 8% Convertible into # shares of common 800 400 300 600 Options For # shares of common 300 1,000 800 1,000 Option price $ 5 $ 8 $ 10 $ 9 Market price $ 6 $ 10 $ 9 $ 12 Earnings $12,500 $ 15,000 $ 6,000 $ 20,000 Tax rate 30% 30% 30% 30% Each of the preferred stock is cumulative. Required: Compute basic and diluted earnings per share for the year ended December 31, 2016.
Explanation / Answer
Basic Earnings per share Earnings before tax $12,500 $15,000 $6,000 $20,000 Less: Tax @ 30% $3,750 $4,500 $1,800 $6,000 Earnings after tax $8,750 $10,500 $4,200 $14,000 Less: Preferred Dividend(Cumulative) 600 800 1000 900 Earnings after Pref. div. $8,150 $9,700 $3,200 $13,100 Common Shares (Nos.) 5000 10000 6000 4000 Basic Earnings per share $1.63 $0.97 $0.53 $3.28 Diluted Earnings per share Common Shares (Nos.) 5000 10000 6000 4000 Pref.Convertible into # shares of common 300 300 500 400 Bonds Convertible into # shares of common 800 400 300 600 Options For # shares of common 300 1000 800 1000 Total no.of possible common shares 6400 11700 7600 6000 Earnings before tax $12,500 $15,000 $6,000 $20,000 Add: Savings of Int on bonds 1200 1000 900 800 Revised EBT $13,700 $16,000 $6,900 $20,800 Less Tax @ 30% $4,110 $4,800 $2,070 $6,240 Earnings after tax $9,590 $11,200 $4,830 $14,560 Total no.of possible common shares 6400 11700 7600 6000 Diluted Earnings per share $1.50 $0.96 $0.64 $2.43