The following information is available for Dilan Inc., a company whose shares ar
ID: 2453429 • 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
Ans 1 Details No of Sahres Cum No of sahres No of Days OS Weight Weighted Average no of shares OS Opening Lot+ Stock Dividend 1,02,000.00 1,02,000.00 59 0.16164384 16,488 Issued on March 1 30,000.00 1,32,000.00 245 0.67123288 88,603 Repurchased on Nov 1 -30,000.00 1,02,000.00 61 0.16712329 17,047 Total 1,22,137 Ans 2 Net Income 1,50,000 Less Cum Preference Dividend 4,000.00 Earnings available to common stock holers 1,54,000 Basic EPS=Earnings available to common stock holers/Weghted Average no of common stock 1.26 Ans 3 Details Addition in earnings Increase in No of shares Revised Earnings Revised No of shares Individual Diluition Stock Options Antiduiluiive Preference Shares 4,000.00 15,000.00 1,58,000.00 1,37,136.99 0.11 Convertible Bonds 4,200.00 10,000.00 1,54,200.00 1,32,136.99 0.09 Stock Options No of Shares 20000 MP Per share 20 Execise Price 25 Since the MP per share is less than exercise price there is no diluition. Ans 4 Details Addition in earnings Increase in No of shares Revised Earnings Revised No of shares Cum. Potential Dilution Individual Diluition Stock Options Preference Shares 4,200.00 10,000.00 1,58,200.00 1,32,136.99 1.197 0.42 Convertible Bonds 4,000.00 15,000.00 1,62,200.00 1,47,136.99 1.102 0.27 Diluitive EPS Revised Earnigs/Revised No of shares Incl Diluitive securities 162200/147136 1.102
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