On January 1, 2014, Lennon Industries had stock outstanding as follows. To acqui
ID: 2491279 • Letter: O
Question
On January 1, 2014, Lennon Industries had stock outstanding as follows. To acquire the net assets of three smaller companies, Lennon authorized the issuance of an additional 279,600 common shares. The acquisitions took place as shown below. On May 14, 2014, Lennon realized a $159,600 (before taxes) insurance gain on the expropriation of investments originally purchased in 2000. On December 31, 2014, Lennon recorded net income of $336,000 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. (Round answer to 2 decimal places, e.g. $2.55.)Explanation / Answer
Income before taxes and extraordinary item 336,000
Income tax @43% 144,480
Income before extraordinary 191,520
Extraordinary gain net of tax (159,600@57%) -90,972
Net income 282,492
Preferred dividend 75,600
Income allocatable to common before extraordinary 191,520 – 75,600 = 115,920
Income allocated to common after extraordinary 282,492 – 75,600 = 206,892
Number of shares outstanding
259,200*12/12 = 259,200
112,800*9/12 = 84,600
136,800*6/12 =68,400
30,000*3/12 = 7500
Weighted average = 419,700
EPS before extrordianry 115,920/419,700 = .28
EPS after extraordinary 90,972/419,700 =.22
Net income = .50
Income before taxes and extraordinary item 336,000
Income tax @43% 144,480
Income before extraordinary 191,520
Extraordinary gain net of tax (159,600@57%) -90,972
Net income 282,492
Preferred dividend 75,600
Income allocatable to common before extraordinary 191,520 – 75,600 = 115,920
Income allocated to common after extraordinary 282,492 – 75,600 = 206,892
Number of shares outstanding
259,200*12/12 = 259,200
112,800*9/12 = 84,600
136,800*6/12 =68,400
30,000*3/12 = 7500
Weighted average = 419,700
EPS before extrordianry 115,920/419,700 = .28
EPS after extraordinary 90,972/419,700 =.22
Net income = .50
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