2. Assume that the following data relative to Kane Company for 2018 is available

Question

2. Assume that the following data relative to Kane Company for 2018 is available: Net Income (Tax rate of 30%) No dividends were declared in 2018 $2,900,000 Transactions in Jan. 1, 2018, Beginning number Feb. 1,2018, Purchase of treasury shares June 1, 2018, Stock split 2-1 Oct. 1, 2018, Issuance of shares (80,000) 820,000 100,000 Cumulative 900,000 820,000 1,640,000 1,740,00o 9%,CumulativeConvertiblePreferredStock Sold at par, convertible into 200,000 shares of common (adjusted for split). $1,200,000 Exercisable at the option price of $30 per share. Average market price in 2018, $32 (market price and option price adjusted for split). 50,000 shares d. On March 1, 2018, issued 15 year, $800,000, 10%, bonds at par. Face value $1,000 per bon Each bond can be converted into 90 shares of common stock. (adjusted for split).

Explanation / Answer

Calculation of Weighted Average Shares Date Shares Months O/s Total 1-Jan              900,000                        1                 2          1,800,000 1-Feb              820,000                        4                 2          6,560,000 1-Jun          1,640,000                        4                 1          6,560,000 1-Oct          1,740,000                        3                 1          5,220,000 Total        20,140,000 Weighted Average Shares - 20,140,000 / 12          1,678,333 Basic Earning Per Share = ($2,900,000 - $108,000) / 1,678,333 Shares Basic Earning Per Share = $1.66 per share (Approx.)

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