On January 1, 2012, Bailey Industries had stock outstanding as follows. To acqui

Question

On January 1, 2012, Bailey Industries had stock outstanding as follows.

To acquire the net assets of three smaller companies, Bailey authorized the issuance of an additional 204,000 common shares. The acquisitions took place as shown below.

On May 14, 2012, Bailey realized a $108,000 (before taxes) insurance gain on the expropriation of investments originally purchased in 2000.

On December 31, 2012, Bailey recorded net income of $325,200 before tax and exclusive of the gain.

Assuming a 42% tax rate, compute the earnings per share data that should appear on the financial statements of Bailey Industries as of December 31, 2012. Assume that the expropriation is extraordinary.

6% Cumulative preferred stock, $109 par value,
   issued and outstanding 10,200 shares
$1,111,800 Common stock, $11 par value, issued and
   outstanding 288,000 shares 3,168,000

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Weighted Average Shares Outstanding = 288000*12/12 + 70800*9/12 + 93600*6/12 + 39600*3/12 = 397800

Income Before Extraordinary Item = (325200 - 42%*325200 - 6%*1111800)/397800 = .31

Extraordinary Gain Per Share = (108000 - 108000*.42)/397800 = .16

Net Income = .47

Thanks.

Bailey Industries
Income Statement
For the year ended December 31, 2012
Income Before Extraordinary Item 0.31 Extraordinary Gain Per Share 0.16 Net Income 0.47

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