On December 31, 2012, Heffner company had 100,000 shares of common stock outstan

Question

On December 31, 2012, Heffner company had 100,000 shares of common stock outstanding. On February 28, 2013, Heffner purchased 24,000 shares of common stock on the open market as treasury stock paying $45 per share. Heffner sold 6,000 of the treasury shares on September 30, 2013, for $47 per share. Net income for 2013 was $540,000. The income tax rate is 40%. Also outstanding at December 31, 2012, were fully vested incentive stock options giving key personnel the option to buy 50,000 common shares at $40. The market price of the common shares averaged $50 during 2013. Five million dollars in 6% bonds were issued at par on January 1, 2013. The bonds are convertible into 625,000 shares of common stock. None of the bonds had been converted by December 31, 2013, and no stock options were exercised during the year.

Compute basic and diluted earnings per share (rounded to 2 decimal places) for Heffner Company for 2013.

Explanation / Answer

Basic EPS=Net Income/Weighted average common stock outstanding 540000/(100000-(24000*10/12)+(6000*3/12)) 540000/81500 6.63 Ans Diluted EPS= Net Income+After Tax Interest/weighted average common stock outsanding+All potential dilutive shares (540000+(5000000*6%*60%))/716500 $720000/716500 1.00 Ans rounded off Potential shares Total exercisse price 50000*$40 2000000 Shares that can be purchased 2000000/50 40000 so dilutive shares 50000-40000 10000 Potential shares-Bonds 625000 Total potential shares 635000 Weighted average common stock outstanding (100000-(24000*10/12)+(6000*3/12)) 81500 Total denominator 716500

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