The following information is available for Dilan Inc., a company whose shares ar
ID: 2452607 • Letter: T
Question
The following information is available for Dilan Inc., a company whose shares are traded on the Toronto Stock Exchange:
Net Income: $150,000
Average market price of common shares during 2014 (adjusted for stock dividend): $20
December 31, 2014 (fiscal year end) market price of common shares: $20
Income tax rate for fiscal year 2014: 30%
Transactions in common shares during 2014: Change.. Cumulative Shares..
Jan .1, 2014, common shares outstanding 90,000
Mar.1, 2014, issuance of common shares 30,000 120,000
June.1, 2014, 10% stock dividend 12,000 132,000
Nov.1, 2014, repurchase of common shares (30,000) 102,000
Other information:
1. For all of the fiscal year 2014, $100,000 of 6% cumulative convertible bonds have been outstanding. The bonds were issued at par and are convertible into a total of 10,000 common shares (adjusted for the stock dividend) at the option of the holder, and at any time after issuance.
2. Stock options for 20,000 common shares have been outstanding for the entire 2014 fiscal year, and are exercisable at the option price of $25 per share (adjusted for the stock dividend).
3. For all of the fiscal year 2014, $100,000 of 4% cumulative convertible preferred shares have been outstanding. The preferred shares are convertible into a total of 15,000 common shares (adjusted for the stock dividend) at the option of the holder, and at any time after January 2019.
Instructions:
(a) Determine the weighted average number of common shares that would be used in calculating earnings per share for the year ending December 31, 2014.
(b) Calculate the basic earnings per share for 2014.
(c) Determine the potential for dilution for each security that is convertible into common shares.
(d) Calculate the diluted earnings per share for 2014. For simplicity, ignore the requirement to record the debt and equity components of the bonds separately.
Explanation / Answer
1. Weighted average number of common shares for calculating EPS for the year ending December 31, 2014 Months Outstanding Product 1-Jan-14 90000 2 180000 1-Mar-14 120000 3 360000 1-Jun-14 132000 5 660000 1-Nov-14 102000 2 204000 1404000 Weighted average no of shares = 1404000/12 =117000 2. Basic Earnings per share for 2014 Earnings 150000 (assumed to be before tax) Less: Tax @ 30% 45000 PAT 105000 Less: Pref Dividend 4% 4000 Net Income for Equity 101000 Wt. Av No of Shares 117000 Basic EPS 0.86 Dilution 3. Potential for dilution for convertible security. Potential 6% Cumulative Convertible Bonds 10000 Could have been converted through out the year Stock Options @ $25 0 No possibiity for exercising during 2014 4% Cumulative Convertible Preferred Shares 0 Not exercisable before Jan 2019 4. Diluted EPS for 2014 Basic earnings for 2014 101000 Add: Interest on 6% bonds @ 100-30=70% 4200 (6000*.7) Diluted earnings 105200 Diluted EPS for 2014 0.83 (105200/(117000+10000 shares)
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.