Question

Problem 16-07 Charles Austin of the controller’s office of Waterway Corporation was given the assignment of determining the basic and diluted earnings per share values for the year ending December 31, 2021. Austin has compiled the information listed below.

Problem 16-07 Charles Austin of the controller's artice of Waterway Corporation was given the assignment of determining the basic and diluted eamings por share valuns for the year ending December 31, 2021. Austin has compiled the intormation listed below. 1. The company is author zed to issue 8,000,000 shares af $10 par value coman stock. As of December 31, 2020, 2,000,000 shares had been issued and were autstanding 2. The per share market prices of the cornnon stock on selected dates were as follows. July 1, 2020 January 1, 2021 April 1. 2021 July 1, 2021 August 1, 2021 November 1, 2021 December 31, 2021 Price per Share $20.00 21.0D 25.00 11.00 10.5D 9.00 10.00 3. A total af 741,600 shares of an authorized 1,296,000 shares of convertible preferred stock had been issued on July 1, 2020. The stack was issued at its par value of $25.00, and it has a cumulative cvicend af $3 per share. The stack is convertible into con man stock at the rate of one share of convertible preferred for one share of common. The rate of conversion is to be automatically adjusted for stock splits and stock dividends. Dividends are paid quarterly on September 30, December 31, March 31, and June 30. 4. Waterway Corporetion is subject to a 20% income tax rete. 5. The arter-tax ret income for the year ended December 31, 2021, was $11,800,000. The following specific activities took place during 2021. 1. January 1-A5% Cot Tan stod dividend was issued. The dividend had been declared on December 1, 2020, ta all stockhalders af recard on December 29, 2020. 2. April: -A total of 382,800 shares of the $3 convert ale preferred stack was converted into common stack. The company issued new common stock and retired the preferred stock. This was the only convers an of the preferred stock during 2021. 3. July 1-A2-for-1 split of the corninon stock became effective on this dece. The board of directors had authorized the solil on Jurie 1. 4. August 1-A total of 316,800 shares of common stock were issued to acquire a factory building 5. November 1-A total of 21,600 shares of common stock were purchased on the open market at $9.00 per share. These shares were to be held as breasury stock and were still in the treasury as of December 31, 2021. 6. Common stock cash dividends Cash dividends to common stockholders were declared and paid as follows. Anni 15-$0,30 per share October 15-$0.20 per share 7. Preferred stock cash dividends-Cash dividends to preferred stockho ders were declared and paid as scheduled. (a) Determine the number of shares used to compute basic earnings per share for the year ended December 31, 2021. (Round answer to 0 decimal places, e.g. $1,500.) Number of shares to computer basic earnings per stare (b) Determine the number of shares used to compute Ciluted earnings per share for the year ended December 31, 2021. (Round answer to o decimal places, e.g. $1,500.) Number of shares to compute diluted earnings per share (c) Compute the adjusted net income to be used as the numerator in the basic ramnings por share calculation for the year ended December 31, 2021. Adjusted net incomes Click if you would like to Show Work for this question: Open Show Viork

Answer 1

(a)
Event	Dates Outstanding	Shares Outstanding	Restatement	Fraction of Year	Weighted Shares
Beginning Balance, including 5% share dividend	Jan. 1–Apr. 1	2,100,000	2	0.25	1,050,000
Conversion of preference share	Apr. 1–July 1	2,501,940	2	0.25	1,250,970
Share split	July 1–Aug. 1	5,003,880		0.08	416,990
Issued shares for building	Aug. 1–Nov. 1	5,320,680		0.25	1,330,170
Purchase of treasury   shares	Nov. 1–Dec. 31	5,299,080		0.17	883,180
Total number of ordinary shares to compute basic earnings per share					4,931,310
b)
Number of shares to compute basic earnings per Share	4,931,310
Convertible preference shares—still outstanding (741600 - 382,800) X 2 X 1.05)	753,480.00
Convertible preference shares—converted    (382,800 X 2 X 1.05 X 3/12)	200,970.00
Number of shares to compute diluted earnings Per share	5,885,760.00
c)
After-tax net income		$ 11,800,000.00
Preference share dividends:
March 31 (741,600 X $3/4)	$                      556,200.00
June 30, September and December 31 (741600 - 382,800) x $3/4 x 3 months)	$                      807,300.00	$   1,363,500.00
Adjusted net income		$ 10,436,500.00