Net Income for the year is $2,000,000 Common Share activity during the year: Jan

Question

Net Income for the year is $2,000,000

Common Share activity during the year:

Jan 1 200,000 shares outstanding

Apr. 1 issued 20,000 shares

Jul. 1 declared 2 for 1 stock split

Sept. 1 purchased 30,000 shares

Options: During the year, 40,000 options existed to buy common stock at an exercise price of $30. the average stock price was $50 during the year. no options were actually exercised.

Convertible preferred stock: During the year, there were 10,000 shares of cumulative convertible preferred stock, $100 par, 8% dividend, each convertible into three shares of common stock. a preferred dividend was not declared or paid during the year.

Convertible Bonds: three thousand, 6% convertible bonds were sold on July 1 of this year each with a $1,000 face value and convertible into 10 shares of common stock. none was actually converted. the marginal tax rate is 35%.

Show how earnings per share should appear on the face of the incomes statement for the year

Explanation / Answer

Net Income for the year 200,000 1-Jan Share outstanding 200,000 1-Apr Issued 20,000 1-Jun Declred 2 for 1 split 1-Sep Purchaed 30,000 Convertible Preffered Stock Price Sahre Amount 100 10,000 1000000 Add Split 3 for 1 So 10,000*3 30,000 Comon Share 1-Jan Share outstanding 200,000 Add: 1-Apr Issued 20,000 Add: 220,000 1-Jun Declred 2 for 1 split 440000 Add: Convertible Preffered Stock 30,000 Total Share 470,000 Net Income for the year 200,000 Less: 8% preffered Devidend 80000 Net Incom Available to common Share holder 120,000 Number of Share 470,000 Earning per share 0.25531915

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