On December 31, 2010, Merlin Company had outstanding 400,000 shares of common stock and 40,000 shares...
On December 31, 2010, Merlin Company had outstanding 400,000
shares of common stock and 40,000 shares of 8% cumulative preferred
stock (par $10). On February 1, 2011, Merlin issued an additional
35,000 shares of common stock. A 15% stock dividend was declared
and distributed on July 1, 2011. On September 30, 2011, 9,000
shares were retired. At year-end, there were fully vested incentive
stock options outstanding for 30,000 shares of common stock
(adjusted for the stock dividend). The exercise price was $18. The
market price of the common stock averaged $20 during the year. Also
outstanding were $1,000,000 face amount of 10% convertible bonds
issued in 2008 and convertible into 50,000 common shares (adjusted
for the stock dividend). Net income was $900,000. The tax rate for
the year was 40%.
Compute basic and diluted EPS for the year ended December 31,
2011.
show work
Homework Answers
| Basic EPS = Net income-preferred dividend /weighted avg commonoutstanding share | ||||||||
| Preferred Dividend = 400000*8% = 32000 | ||||||||
| Weighted average common outstanding share | ||||||||
| (400000*1.15)+(35000*11/12)*1.15-(9000*3/12) | ||||||||
| 494646 | ||||||||
| Weighted avg common outstanding share = 494646 | ||||||||
| Basic EPS = (900000-32000)/494646 | ||||||||
| Basic EPS = 1.75 | ||||||||
| Calculation of Diluted EPS | ||||||||
| adjusted net income | ||||||||
| 900000-32000+(1000000*10%)-(100000*40%) | ||||||||
| adjusted net income = 928000 | ||||||||
| Ajusted weighted average common outstanding share | ||||||||
| 400000*1.15+(35000*11/12)*1.15- (9000*3/12)+(30000-27000**)+50000 | ||||||||
| adjusted weighted average common outstanding share= 547646 | ||||||||
| Diluted EPS = 928000/547646 = 1.69 | ||||||||
| ** 30000 shares*18 (exercise price) =540000 | ||||||||
| 540000/20 avg market price =27000 |
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