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 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 1.740,000 ferred Stock 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, S32 (market price and option price adjusted for split). 50,000 shares ds at par. Face value $1,000 per bond. Each bond can be converted into 90 shares of common stock. (adjusted for split).

Explanation / Answer

For dilutive EPS, Net Income = 2900000 - dividend preferred $108000 = $2792000 Effective shares: common shares Outstanding shares 1740000 Pref conversion to CS dilutive shares 200000 Stock options 50000*30/32=46875 dilutive shares 50000-46875 3125 Convertiblebonds dilutive shares 800000*90/1000 72000    Total effective dilutive shares 2015125 Diluted EPS =$2792000/2015125 =$1.39per Diluted share Net Income / (outstanding shares + dilutive shares)

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