Francis Company has 28,800 shares of common stock outstanding at the beginning o
ID: 2459164 • Letter: F
Question
Francis Company has 28,800 shares of common stock outstanding at the beginning of 2013. Francis issued 3,600 additional shares on May 1 and 2,400 additional shares on September 30. It also has two convertible securities outstanding at the end of 2013. These are:
Convertible preferred stock: 3,000 shares of 8.0%, $50 par, preferred stock were issued on January 2, 2010, for $60 per share. Each share of preferred stock is convertible into 2 shares of common stock. Current dividends have been declared and paid. To date, no preferred stock has been converted.
Convertible bonds: Bonds with a face value of $300,000 and an interest rate of 5.0% were issued at par in 2012. Each $1,000 bond is convertible into 25 shares of common stock. To date, no bonds have been converted.
Francis earned net income of $84,000 during 2013. The income tax rate is 30%.
Required:
1. Compute the number of shares of common stock that Francis should use in calculating basic earnings per share for 2013.
Weighted average shares outstanding:
2. Calculate basic earnings per share for 2013. If required, round your answer to the nearest cent.
Basic earnings per share: $
3. Calculate diluted earnings per share for 2013 and the incremental EPS of the preferred stock and convertible bonds. If required, round your answers to the nearest cent.
Diluted earnings per share: $
Incremental Earnings Per share
Bonds:
Preferred:
4a. Assume the same facts as above except that net income included a loss from discontinued operations of $12,000 net of income taxes. Compute basic EPS. You do not have to calculate diluted EPS for this case. If required, round your answer to the nearest cent.
Basic earning per share: $
4b. Show how the basic EPS you calculated should be reported to shareholders. You do not have to calculate diluted EPS.
Income from continuing operations: ____________
Loss from discontinued operations: __(________)___
Net Income: ________
4a. Assume the same facts as above except that net income included a loss from discontinued operations of $12,000 net of income taxes. Compute basic EPS. You do not have to calculate diluted EPS for this case. If required, round your answer to the nearest cent.
Basic earning per share: $
4b. Show how the basic EPS you calculated should be reported to shareholders. You do not have to calculate diluted EPS.
Income from continuing operations: ____________
Loss from discontinued operations: __(________)___
Net Income: ________
Explanation / Answer
Required: 1. Compute the number of shares of common stock that Francis should use in calculating basic earnings per share for 2013. Weighted average shares outstanding: No. of shares outstanding for the full year 2013 28800 Weightage for 3600 shares issued on May 1 2400 8 months from May 2013 to December 2013 Weightage for 2400 additional shares issued on September 30 600 3 months from October 2013 to December 2013 Total no. of shares of common stock 31800 shares 2. Calculate basic earnings per share for 2013. If required, round your answer to the nearest cent. Basic earnings per share: $ Basic Earnings per share in $ is calculated by using the formula Net Income/No. of shares Net Income (post taxes) = 58800 $ Basic Earnings per share in $ = 1.85 $ 3. Calculate diluted earnings per share for 2013 and the incremental EPS of the preferred stock and convertible bonds. If required, round your answers to the nearest cent. For calculating the diluted earnings per share, the number of shares needs to be reworked Common Stock average no. of shares as above 31800 Preferred Stock convertible into common stock 6000 Bonds convertible into common stock 7500 Total no. of shares for diluted earnings 45300 Net Income for diluted earnings $ Earnings post taxes as above 58800 Interest payable on bonds 15000 Dividend payable on Preferred Stock 12000 Adjusted Net Income for Diluted Earnings 85800 Diluted earnings per share: $ 1.89 $ Incremental Earnings Per share Bonds: 0.0025 $ Interest Payable on Bonds/No. of bonds convertible/Price per bond Preferred: 0.04 $ Dividend on Preferred Stock/No. of preferred stock shares/Price per share 4a. Assume the same facts as above except that net income included a loss from discontinued operations of $12,000 net of income taxes. Compute basic EPS. You do not have to calculate diluted EPS for this case. If required, round your answer to the nearest cent. Basic earning per share: $ 1.58 Basic Earning per share will be the net income as above less loss from discontinued operations (net of taxes) 50400 $ As divided by the basic no. of equity shares outstanding 31800 Thus, the basic earning per share will be 1.58 $ 4b. Show how the basic EPS you calculated should be reported to shareholders. You do not have to calculate diluted EPS. Income from continuing operations: $ 84,000 Loss from discontinued operations: ($ 12,000) Net Income: $ 72,000
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