Use the following information to answer questions 14 and 15 Instructions for pro
ID: 2593578 • Letter: U
Question
Use the following information to answer questions 14 and 15 Instructions for problems 14 and 15: Work the following problem by hand. Be sure to show your work in order to receive partial credit. 10 Points Possible At December 31, 2010, Bradie Company had 1,000,000 shares of common stock outstanding. On April 1,2011, an additional 200,000 shares of common stock were issued, on July 1 2011 Bradie purchased 150,000 shares on the open market (stock price was $17 per share), on November 1, 2011 Bradie announced and issued a 3 for 1 stock split, and on December 1, 2011 the company purchased 1,800,000 shares on the open market (stock price was $15 per share). In addition, Bradie had S9,000,000 of 5% convertible bonds outstanding at December 31, 2010, which are convertible into 500,000 shares of common stock. The conversion ratio for the bonds is automatically adjusted for stock splits and dividends. No bonds were converted into common stock in 2011. The net income for the year ended December 31, 2011, was $4,500,000 and the income tax rate was 30%. 14. What should be the basic earnings per share for the year ended December 31, 2011, rounded to the nearest penny? 15. What should be the diluted earnings per share for the year ended December 31, 2011, rounded to the nearest penny? Hint: Make sure you adjust the converted shares for the stock split tatem ent Shares (Stock Weighted CS Outstanding Oustanding Split) Fraction of Yed Avg. 1/1/2011 1,000,0001/1-4/1 i 1,000,000 750,000 200,000 778 1.2950023/850 ,050,0003 0.333333333 1,050,000 ,150,000 1 0083333333 262,500 12/1-12/31 1,350,000 1 0.083333333 112,500 ,075,000 2//2011 -150000111-12/3 050,000 11/1/2o11 2,100,000 3,150,000 121/2011 1,800,000 1,350,000 WA CS Outstanding Net Income 4,300,000 Convert Debt $ 3,000,000 $ 450,000 coupon , - Convert Cs Pref. Div 500,000 3Explanation / Answer
1st april 2010 outstanding shares = 1000000 ,
Weighted Average shares from jan till 1st april 2011 is 1000000 * 3 / 12 = 2500000 , as there is stock split of 3 shares to 1 hence no the shares would be 250000*3 = 750000 while no of shares on 1st april is 1200000 due to purchase of additional shares
Weighted average no of sharesfrom April till 1st july is 1200000*3/12 = 300000 as there is stock split of 3 shares to 1 hence no the shares would be 300000*3 = 900000 while no of shares on 1st july is 1050000 due to sales of 150000 shares
Weighted avergae no of shares from july till 1st Nov is 1050000*4/12= 350000 as there is stock split of 3 shares to 1 hence no the shares would be 350000*3 = 10500000 while no of shares on 1st nov is 1050000*3= 31500000
Weighted average no of shares from nov to 1st Dec is 3150000*1/12 =262500, no stock split option conversion factor is used because no of shares already includes split factor in this , now no of shares on 1st dec is 1350000 as there has been sale of 1800000 shares
Weighted average no of shares from 1st dec to 31st dec is 1350000*1/12= 112500
Wgt Avg no of shares for 1 year is 3075000
EPS = (Net income - pref dividend) / avg shares which is 4500000- 5% of 9000000 / 3075000 = 1.31
Diluted Eps = Net income/ avg shares plus covertible shares = 4500000/(3075000+1500000) = 0.98
Covertible shares = 500000*3 (due to share split) = 1500000