Daniel Company had 30,000 shares of common stock outstanding on january 1 and is

Question

Daniel Company had 30,000 shares of common stock outstanding on january 1 and issued an additional 9,000 on August 1 of 2016. The company also has $100,000 of 8% convertible bonds outstanding during the yrar. Each $1,000 bond is convertible into 5 shares of common stock. Daniel had after-tax net income for the year of $160,000, and the tax rate was 30%. Required: Compute the appropriate earnings per share amount(s) to be reported on Daniel Company's 2016 income statement, and explain your answer. 7. Robertson Company had 40,000 shares of common stock outstanding during 2016 and compensator, share options to purchase 5,000 shares of common stock at $10 a share plus a $3 a share unrecognised compensation cost (net of tax). The average market price is $20 a share. The company also had 7% convertible preferred stock on which dividends of $9,000 were declared. Each preferred share is convertible into 6,000 common shares. Robertson's after-tax net income was $88,000, and the tax rate was 40%. Required: Compute 2016 diluted earnings per share for Robertson Company. 8. Why might prior period adjustment become necessary and how arc they accounted for?

Explanation / Answer

6. Common stock = 30000 shares

Additional common stock = 9000 share

Convertible bonds into common stock = 100000/1000*5= 500 shars

Total common stock is 39500 share

So Earnings per share

Net profit after tax/number of ordinary share

$160000/39500=$ 4.05 per shares

8. A prior period adjustment can be one of the following two items:-

* The correction of an error in financial statement that were reported for prior period or

* Adjustment caused by realization of the income tax benefit from the operation losses of purchased subsidiries before they were acquired since the second situation is both highly specific and rare, a prior period adjustment really applies to just the first item.

An error in a financial statement may be caused by :-

* Mathematical Mistake

* Mistake in the application of GAAP or some other accounting framwork or

* The oversight or misuse of facts existed at the time the financial statement were prepared.

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