On June 1, 2015, Splish Company and Blossom Company merged to form Blue Inc. A t
ID: 2508869 • Letter: O
Question
On June 1, 2015, Splish Company and Blossom Company merged to form Blue Inc. A total of 837,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis.
On April 1, 2017, the company issued an additional 576,000 shares of stock for cash. All 1,413,000 shares were outstanding on December 31, 2017.
Blue Inc. also issued $600,000 of 20-year, 7% convertible bonds at par on July 1, 2017. Each $1,000 bond converts to 36 shares of common at any interest date. None of the bonds have been converted to date.
Blue Inc. is preparing its annual report for the fiscal year ending December 31, 2017. The annual report will show earnings per share figures based upon a reported after-tax net income of $1,395,000. (The tax rate is 40%.)
Determine the following for 2017.
(a) The number of shares to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)
(b) The earnings figures to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)
Explanation / Answer
ans 1 Weighted avg shares Additional shares Outstnading shares No. of months weighted avg shares Date Jan 1-Mar 31 837000 3/12 209250 April 1 -Dec 31 576000 1413000 9/12 1059750 Total 1269000 basic earning per share 1269000 ans Diluted earning per share 1279800 ans Additional shares Outstnading shares No. of months weighted avg shares Date Jan 1-Mar 31 837000 3/12 209250 April 1 -june 576000 1413000 3/12 353250 July 1 -Dec 31 21600 1434600 6/12 717300 1279800 If bonds are converted 600000/1000*36 21600 ans 2 rounded to one decimal Basic EPS 1 1.1 Net income/Weighted avg shares 1395000/1269000 Diluted eps 1 1.1 (1395000+12600)/1279800 Interest saving (600000*1/2*7%) 21000 Less: additional tax 8400 (21000*40%) Net effect 12600 If any doubt please comment
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