Question

Charles Austin of the controller's office of Coronado Corporation was given the assignment of determining the basic and diluted earnings per share values for the year ending December 31, 2018. Austin has compiled the information listed below. 1. The company is authorized to issue 7,680,000 shares of $10 par value common stock. As of December 31, 2017, 1.920,000 shares had been issued and were outstanding 2. The per share market prices of the common stock on selected dates were as follows. Price per Share July 1, 2017 $20.00 January 1, 2018 21.00 April 1, 2018 25.00 July 1, 2018 11.00 August 1, 2018 10.50 November 1, 2018 9.00 December 31, 2018 10.00 3. A total of 670,800 shares of an authorized 1,284,000 shares of convertible preferred stock had been issued on July 1, 2017. The stock was issued at its par value of $25.00, and it has a cumulative dividend of $3 per share. The stock is convertible into common 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. Coronado Corporation is subject to a 40% Income tax rate. 5. The after-tax net income for the year ended December 31, 2018, was $12.070,000 The following specific activities took place during 2018, 1. January 1-A5% common stock dividend was issued. The dividend had been declared on December 1, 2017 to all stockholders of record on December 29. 2017

Answer 1

Part A

Event	Dates outstanding	Shares outstanding	restatement	Fraction of year	Weighted shares
Beginning Balance, including 5% stock dividend	Jan. 1–Apr. 1	2016000	2.0	3/12	1008000
Conversion of preferred stock	Apr. 1–July 1	2448180	2.0	3/12	1224090
Stock split	July 1–Aug. 1	4896360		1/12	408030
Issued shares for building	Aug. 1–Nov. 1	5168560		3/12	1292140
Purchase of Treasury stock	Nov. 1–Dec. 31	5143360		2/12	857227
Total number of common shares to compute basic earnings per share	4789487

1920000*1.05 = 2016000

(2016000+411600+(411600*5%)) = 2448180

2448180*2 = 4896360

4896360+272200 = 5168560

5168560-25200 = 5143360

Part 2

Number of shares to compute basic earnings per	4789487
Convertible preferred stock—still outstanding ((272200) X 2 X 1.05)	571620
Convertible preferred stock—converted (411600 X 2 X 1.05 X 3/12)	216090
Number of shares to compute diluted earnings per share	5577197

Part 3

After-tax net income		12070000
Preferred stock dividends
March 31 (670800 X $0.75)	503100
June 30, September 30, and December 31 (259200 X $0.75 X 3)	583200	(1086300)
Adjusted net income		$10983700

670800-411600 = 259200