On January 1, 2014, Lennon Industries had stock outstanding as follows. 6% Cumul
ID: 2467565 • Letter: O
Question
On January 1, 2014, Lennon Industries had stock outstanding as follows.
6% Cumulative preferred stock, $101 par value iisued and outstanding 11,100 shares- $1,121,100
Common stock, $11 par value, issued and oustanding 188,400 shares- 2,072,400
To acquire the net assets of three smaller companies, Lennon authorized the issuance of an additional 231,600 common shares. The acquisitions took place as shown below.
Company A April 1 2014-85,200
Company B July 1 2014- 105,600
Company C October 1 2014- 40,800
On May 14, 2014, Lennon realized a $129,600 (before taxes) insurance gain on the expropriation of investments originally purchased in 2000.
On December 31, 2014, Lennon recorded net income of $320,400 before tax and exclusive of the gain.
Assuming a 43% tax rate, compute the earnings per share data that should appear on the financial statements of Lennon Industries as of December 31, 2014. Assume that the expropriation is extraordinary.
Income before Extraordinay Item=
Extraordinary Gain=
Net Income=
Explanation / Answer
Calculation of EPS before Extraordinary Item
Income before Extraordinary Item : 320,400
LESS: - INCOME TAX @43% : 137,772
INCOME AFTER TAX (CONTINUING OPERATION) : 182,628
Less: Dividend payable 6% Cumulative preferred stock : 67,266
Amount left for Common Stock : 115,362
CALCULATION OF Weighted Average Common Shares For the Year
Description Dates Shares Fraction of Year Weighted Average
Opening Balance 01/01/03 188,400 12/12 188400
Issued Shares 01/04/03 85,200 9/12 63900
Issued Shares 01/07/03 105,600 6/12 52800
Issued Shares 01/10/03 40,800 3/12 10200
315300
Calculation of Basic Earnings per Share CONTINUING OPERATION
= Net Income less Preferred Dividends
Weighted Average Common Shares
= 115362
315300
= .366(rounded off)
Calculation of EPS - Extraordinary Item
Income before Extraordinary Item : 129,600
LESS: - INCOME TAX @43% : 55,728
INCOME AFTER TAX (Extraordinary Item) : 73,872
Less: Dividend payable 6% Cumulative preferred stock : 67,266
Amount left for Common Stock : 6,606
CALCULATION OF Weighted Average Common Shares For the Year
Description Dates Shares Fraction of Year Weighted Average
Opening Balance 01/01/03 188,400 12/12 188400
Issued Shares 01/04/03 85,200 9/12 63900
Issued Shares 01/07/03 105,600 6/12 52800
Issued Shares 01/10/03 40,800 3/12 10200
315300
Calculation of Basic Earnings per Share CONTINUING OPERATION
= Net Income less Preferred Dividends
Weighted Average Common Shares
= 6606
315300
= 0.021(rounded off)
Calculation of EPS Net Income
Income After Extraordinary Item : 450,000
LESS: - INCOME TAX @43% : 193,500
INCOME AFTER TAX : 256,500
Less: Dividend payable 6% Cumulative preferred stock : 67,266
Amount left for Common Stock : 189,234
CALCULATION OF Weighted Average Common Shares For the Year
Description Dates Shares Fraction of Year Weighted Average
Opening Balance 01/01/03 188,400 12/12 188400
Issued Shares 01/04/03 85,200 9/12 63900
Issued Shares 01/07/03 105,600 6/12 52800
Issued Shares 01/10/03 40,800 3/12 10200
315300
Calculation of Basic Earnings per Share
= Net Income less Preferred Dividends
Weighted Average Common Shares
= 189234
315300
= .600(rounded off)
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