Assume that the following data relative to Kane Company for 2018 is available: N

Question

Assume that the following data relative to Kane Company for 2018 is available: Net Income $2,870,000 Transactions in Common Shares Jan. 1, 2018, Beginning number Mar. 1, 2018, Purchase of treasury shares June 1, 2018, Stock split 2-1 Nov. 1, 2018, Issuance of shares Change Cumulative 680,000 (56,400) 623,600 623,600 1247,200 210,000 1,457,200 6% Cumulative Convertible Preferred Stock Sold at par, convertible into 200,000 shares of common (adjusted for split) $1,000,000 Stock Options Exercisable at the option price of $25 per share. Average market price in 2018, $30 (market price and option price adjusted for split). 81,000 shares Compute weighted average shares outstanding for 2018 Weighted average shares outstanding

Explanation / Answer

Solution 1:

Weighted average outstanding share before stock split = 680000*2/12 + 623600 * 10/12 = 633000

Weighted averge outstanding shares after stock split = 210000*2/12 = 35000

Total weighted average outstanding shares after considering effect of stock split = 623000*2 + 35000 = 1281000

Net Income = $2,870,000

Preferred dividend = $1,000,000*6% = $60,000

Earning available for common shareholder = $2,870,000 - $60,000 = $2,810,000

EPS = Earnings available for common shareholders / Weighted average outstanding shares

= $2,810,000 / 1281000 = $2.19 per share

Solution 2:

Preferred stock convertible in to number of common shares = 200000

Amount to be paid for stock option = 81000*25 = $2,025,000

Value of option in current shares = Amount paid to exercise option / Current market price = $2,025,000 / 30 = 67500 shares

Diluted shares = Option issued - Value of option in current shares= 81000 - 67500 = 13500

Future earnings for equity share holders = $2,870,000

Future weighted average outstanding shares = 1281000 + 200000 + 13500 = 1494500 shares

Diluted EPS = $2,870,000 / 1494500 = $1.92

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.