Problem 146 Problem 146 Assume that the following data relative to Kane Company
ID: 2574913 • Letter: P
Question
Problem 146
Problem 146
Assume that the following data relative to Kane Company for 2018 is available:Net Income $2,790,000 Transactions in Common Shares Change Cumulative Jan. 1, 2018, Beginning number 710,000 Mar. 1, 2018, Purchase of treasury shares (65,400) 644,600 June 1, 2018, Stock split 2-1 644,600 1,289,200 Nov. 1, 2018, Issuance of shares 258,000 1,547,200 6% Cumulative Convertible Preferred Stock Sold at par, convertible into 220,000 shares of common (adjusted for split). $1,100,000 Stock Options Exercisable at the option price of $25 per share. Average market price in 2018, $30 (market price and option price adjusted for split). 84,000 shares
Explanation / Answer
01-Jan Outstanding 710000 01-Mar Repurchase (5/6 × 65,400) 54500 655500 01-Jun 2-for-1 split 1311000 01-Nov Issued (1/6 ×258000) 43000 1354000 Additional shares for purposes of diluted earnings per share Potentially dilutive securities 6% convertible preferred stock 220000 stock options Proceeds from exercise of 84,000 options 84000*25 2100000 Shares issued upon exercise of options 84000 Less: treasury stock purchasable with proceeds ($2,100,000 ÷ $30) 70000 14000 Dilutive securities—additional shares 206000 A Basic Earnings per share 2790000-66000/1354000 2.01 B Diluted earnings per share 2790000/(1354000+206000) 1.79