At December 31, 2018, the financial statements of Hollingsworth Industries inclu

Question

At December 31, 2018, the financial statements of Hollingsworth Industries included the following: $540 million $350 million Net income for 2018 Bonds payable, 10%, convertible into 42 million shares of common stock Common stock: Shares outstanding on January 1 Treasury shares purchased for cash on September 1 500 million 36 million Additional data: The bonds payable were issued at par in 2016, The tax rate for 2018 was 40%. Required: Compute basic and diluted EPS for the year ended December 31, 2018, Enter your answers in millions (i.e., 10,000,000 should be entered as 10).) Numerator DenominatorEarnings per share Basic Diluted

Explanation / Answer

For Basic EPS we need to calculate the number of shares outstanding

Shares as on Jan 1 500 million

Less Treasury shares on Sep 1 (12 million)

(36 million*4months/12months)

Number of shares o/s 488 Million

Basic EPS = Net Income/ Number of shares = $540 million/488 million = $1.107

For Diluted EPS

Net Income has to be adjusted

Net Income $540 Million

Add: After tax interest savings $21 Million

(35 millions-(40%(35million)

Adjusted Net income $561 million

and weighted number of shares will include the bonds, that are convertible

Outstanding shares as computed above 488 million

Add Bond conversion Shares 42 million

Total shares outstanding 530 million

Diluted EPS = $561 million/530 million = $1.06

Numerator / Denominator = EPS Basic $540 million / 488 million = $1.107 Diluted $561 million / 530 million = $1.06

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