Amy Chang of the controller\'s office of Thompson Corporation was given the assi

Question

Amy Chang of the controller's office of Thompson Corporation was given the assignment of determining the basic and diluted earnings per share values for the year ending Decenber 31, 2015. Array has complied the information listed below. 1. The after-tax net income for the year ended December 31, 2015, was $15, 000, 000. The income tax rate is 40%. 2. The company is authorized to issue 10, 000, 000 shares of $10 par value common stock. As of December 31, 2014, 2, 000, 000 share has been issued and were outstanding. 3. A total of 1, 200, 000 shares of convertible preferred stock had been issued on August 1, 2014. The stock was issued at its par value of $25, and it has a started divided of $53 per share per year. The stock is convertible into common stock at the rate of one share of convertible preferred for one share of common. The rate of conversion is to be automatically adjusted for stock splins and stock dividends Dividends are paid semiannually on July 1 and January 1 to all stockholder of record on Jun 2.29 and December 29 respectively.

Explanation / Answer

OLUTION (a)

SOLUTION (b)

SOLUTION (c)

OLUTION (a)

Outstanding Time Period Outstanding Shares Factor Fraction of Year Weighted Shares Beg Balance + 5% stock dividend Jan 1 - April 1 1,930,320 2.0 3/12 965,160 Preferred Stock Conversion Apr 1 - Jul 1 2,457,000 2.0 3/12 1,228,500 Stock Split Jul 1 - Aug 1 4,914,000 1/12 4,09,500 Issued Shares for building Aug 1 - Nov 1 5,257,200 3/12 1,314,300 Purchase of Treasury Stock Nov 1 - Dec 31 5,227,400 2/12 871,233 Total shares for diluted EPS 4,788,693

SOLUTION (b)

No of shares for basic EPS 4,788,693 Outstanding convertible Pref Shares 220,800 x 2 x 1.05 463,680 Converted Pref shares 501,600 x 2 x 1.05 x 3/12 263,340 No of shares for Diluted EPS 5,515,713

SOLUTION (c)

Adjusted Net Income (Basic EPS) Net Income (after tax) 12,420,000 Preferred Stock Dividends Calcualtion Amount March 31 Dividend 722,400 x 0.75 541,800 June, Sept, Dec Dividend 220,800 x 0.75 x3 496,800 Total Pref Dividends 1,038,600 Adjusted Net Income 12,420,000 - 1,038,600 11,381,400

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