ch 19 part 2: Earnings per share 6. During its first year of operations, McCollu

Question

ch 19 part 2: Earnings per share

6.

During its first year of operations, McCollum Tool Works entered into the following transactions relating to shareholders’ equity. The corporation was authorized to issue 100 million common shares, $1 par per share.

Entered an agreement with the company president to issue up to 2 million additional shares of common stock in 2017 based on the earnings of McCollum in 2017. If net income exceeds $140 million, the president will receive 1 million shares; 2 million shares if net income exceeds $150 million.

Compute basic and diluted earnings per share for the year ended December 31, 2016. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

1. Basic EPS :

2. Diluted EPS :

Jan. 2 Issued 45 million common shares for cash. 3

Entered an agreement with the company president to issue up to 2 million additional shares of common stock in 2017 based on the earnings of McCollum in 2017. If net income exceeds $140 million, the president will receive 1 million shares; 2 million shares if net income exceeds $150 million.

Mar. 31 Issued 4 million shares in exchange for plant facilities.

Explanation / Answer

EPS=Net Profit/Outstanding number of shares

EPS=146000000/49000000

EPS=2.9794 per share

Diluted EPS=Net profit/Diluted outstanding shares

Diluted EPS=146000000/51000000

Diluted EPS=2.8627 per share

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