Information from the financial statements of Barstow Industries included the fol
ID: 2481924 • Letter: I
Question
Information from the financial statements of Barstow Industries included the following at December 31, 2014: Common shares outstanding, $1 par $620,000 8%, noncumulative, non-convertible preferred stock $250,000 During 2015, Barstow had the following stock transactions: Feb. 28 66,000 common shares sold May 15 5% common stock dividend declared and issued Jul 01 2,500 shares repurchased to be held in Treasury Stock, already adjusted for stock dividend Dec. 31 $2,100,000 net income for the year 30% income tax rate As part of an incentive compensation plan, Barstow granted incentive stock options to division managers at December 31 of two prior years. Each option permits its holder to buy one share of common stock at an exercise price equal to market value at the date of grant and can be exercised one year from that date. Information concerning the number of options granted and common share prices follows: Date Granted Options Granted Share Price (adjusted for the stock dividend) Dec. 31, 2013 8000 $24.00 Dec. 31, 2014 3200 $34.00 The market price of the common stock averaged $32 per share during 2014. On July 12, 2012, Barstow issued convertible bonds at face value. Information related to this bond is given below: Face value $800,000.00 State rated of interest 9% Each $1,000 bond is convertible into 30 common shares (adjusted for the stock dividend) Required: Compute Barstow's basic and diluted earnings per share for the year ended December 31, 2015. Information from the financial statements of Barstow Industries included the following at December 31, 2014: Common shares outstanding, $1 par $620,000 8%, noncumulative, non-convertible preferred stock $250,000 During 2015, Barstow had the following stock transactions: Feb. 28 66,000 common shares sold May 15 5% common stock dividend declared and issued Jul 01 2,500 shares repurchased to be held in Treasury Stock, already adjusted for stock dividend Dec. 31 $2,100,000 net income for the year 30% income tax rate As part of an incentive compensation plan, Barstow granted incentive stock options to division managers at December 31 of two prior years. Each option permits its holder to buy one share of common stock at an exercise price equal to market value at the date of grant and can be exercised one year from that date. Information concerning the number of options granted and common share prices follows: Date Granted Options Granted Share Price (adjusted for the stock dividend) Dec. 31, 2013 8000 $24.00 Dec. 31, 2014 3200 $34.00 The market price of the common stock averaged $32 per share during 2014. On July 12, 2012, Barstow issued convertible bonds at face value. Information related to this bond is given below: Face value $800,000.00 State rated of interest 9% Each $1,000 bond is convertible into 30 common shares (adjusted for the stock dividend) Required: Compute Barstow's basic and diluted earnings per share for the year ended December 31, 2015.Explanation / Answer
date Issues/Retired No.of Outstanding Shares After Stock dividend. No of shares outsnading No.of Months held Weighted average shares 1-Jan 620000 651000 2/12 months 108500 28-Feb 66000 686000 720300 4/12 months 240100 1-Jul -2500 683500 717675 6/12 month 358837.5 Total 707438 Note stock dividend has effect from the start of the year Ans a Basic EPS=Net Income-Preferred Dividend/Weighted averga no.of common stockholder 2100000/707438 2.968 2.97 Ans Now for Diluted EPS we have to take dilutive portion of options. Note the options can be exerside after 1 year of grant of option so options Options for 2013 Multiply the exercise price with no. ofoptions 8000*24 192000 Divide the proceeds by market price 192000/32 6000 No. of Dilutive Shares 8000-6000 2000 Options for 2014 There are no dilutiove shares in this case as option price is more than market price To be dilutives the exercise price must be less than market price which is just the case of options as on 31/12/2013 Bond convetible into share so $1000 bond is convetible into 30 shares 800000/1000*30 24000 So total potential common stock 24000+2000 26000 After Tax interest 800000*9%*60% 43200 Ans b Dilutive EPS 2100000+43200/(707438+26000) 2.922 2.92 Ans Nial shareset Income+After tax interest on convertible bonds/(weighted avg no. of shares+all potential shares