and outstanding, 330,000 of which had been issued and outstanding throughout the

Question

and outstanding, 330,000 of which had been issued and outstanding throughout the At December 31, 2017, Vaughn Company had 520,000 shares of common stock issued year and 190,000 of which were issued on October 1, 2017. Net income for the year ended December 31, 2017, was $1,100,000. What should be Vaughn's 2017 basic earnings per common share? (Round answer to 2 decimal places, e.g. 15.25.) Ass um e that Vaughn issued 10-year, $200,000 face value, 6% bonds in 2016 at par (payable annually on January 1). Each $1,000 bond is conve tible into 30 shares of Vaughn's $2 par value common stock. Compute diluted earnings per share. Ignore taxes. (Round answer to 2 decimal places, e.g. 15.25.) Diluted Earnings Per Share 20p

Explanation / Answer

Weighted average number of common shares outstanding = 330,000 + (190,000*3/12)

= 330,000 + 47,500

= 377,500

Earnings per share = Net income / Weighted average number of common shares outstanding

= 1,100,000 / 377,500

= 2.91

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Interest savings = 200,000 * 6% = 12,000

Number of shares = 377,500 + (200,000/1,000*30) = 377,500 + 6,000 = 383,500

Diluted earnings per share = (1,100,000+12,000) / 383,500

= 2.90

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