Please complete parts 4 and 5 using excel showing formuals. Assume that the foll

ID: 2568986 • Letter: P

Question

Please complete parts 4 and 5 using excel showing formuals.

Assume that the following data relative to Kane Company for 2018 is available: Net Income $2,100,000 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, lssuance of shares Change (60,000) 640,000 240,000 Cumulative 700,000 640,000 1,280,000 1,520,000 6% Cumulative Convertible Preferred Stock Sold at par, convertible into 200,000 shares of common (adjusted for split) $1,000,000 Exercisable at the option price of $25 per share. Average market price in 2018, $30 (market price and option price adjusted for split) 90,000 shares Instructions 4.Compute the basic earnings per share for 2018. (Round to the nearest penny.) 5.Compute the diluted earnings per share for 2018. (Round to the nearest penny.)

Explanation / Answer

Answer:

(a) Compute the basic earnings per share for 2018

Computation of weighted average shares outstanding during the year:

1-Jan

Outstanding

700,000.00

1-Mar

Repurchase (5/6 × 60,000)

50,000.00

650,000.00

1-Jun

2-for-1 split

1300000

1-Nov

Issued (1/6 × 240,000)

40,000

1,340,000

Basic earnings per share:

=(Net income- preference dividend ) / weighted average shares outstanding during the year

=( $2,100,000 – (1,000,000*6%) ) / 1340,000

=( $2,100,000 – $60,000 ) / 1340,000

=1.52

basic earnings per share for 2018 =$1.52

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(b)

Compute the diluted earnings per share for 2018

Potentially dilutive securitie

8% convertible preferred stock

200,000

Stock options

Proceeds from exercise of
60,000 options (60,000 × $25)

2,250,000

Shares issued upon exercise of options

90,000

Less: treasury stock purchasable with
proceeds ($1,500,000 ÷ $30)

75000

(90000-75000)

15,000

Dilutive securities—additional shares
(200,000+15,000)

215,000

Diluted earnings per share:

= Net income / weighted average shares outstanding during the year

= $2,100,000 / 1340,000+215000

=$2,100,000 – / 1,555,000

=1.35

Diluted earnings per share for 2018 =$1.35

basic earnings per share for 2018

1.52

Diluted earnings per share for 2018

1.35