harles Austin of the controller\'s office of Sweet Corporation was given the ass
ID: 3216341 • Letter: H
Question
harles Austin of the controller's office of Sweet Corporation was given the assignment of determining the basic and diluted earning er share values for the year ending December 31, 2018. Austin has compiled the information listed below. . The company is authorized to issue 7,720,000 shares of $10 par value common stock. As of December 31, 2017, 1,930,000 shares had been issued and were outstanding. 2. The per share market prices of the common stock on selected dates were as follows. Price per Share $20.00 21.00 25.00 11.00 10.50 9.00 10.00 July 1, 2017 January 1, 2018 April 1, 2018 July 1, 2018 August 1, 2018 November 1, 2018 December 31, 2018 3. A total of 687,600 shares of an authorized 1,224,000 shares of convertible preferred stock had been issued on July 1, 2017. The stock was issued at its par value of $25.00, and it has a cumulative dividend of $3 per share. The stock is convertible into common stock at the rate of one share of convertible preferred for one share of common. The rate of conversion is to be automatically adjusted for stock splits and stock dividends. Dividends are paid quarterly on September 30, December 31, March 31, and June 30. Sweet Corporation is subject to a 40% income tax rate. 5. The after-tax net income for the year ended December 31, 2018, was $11,360,000. The following specific activities took place during 2018. 1. January 1-A 5% common stock dividend was issued. The dividend had been declared on December 1, 2017, to all stockholders of record on December 29, 2017 2. April 1-A total of 392,400 shares of the $3 convertible preferred stock was converted into common stock. The company issued new common stock and retired the preferred stock. This was the only conversion of the preferred stock during 2018. 3. July 1-A 2-for-1 split of the common stock became effective on this date. The board of directors had authorized the split on June 4. August 1 A total of 301,200 shares of common stock were issued to acquire a factory buildingExplanation / Answer
Part A
Determine the number of shares used to compute basic earnings per share for the year ended December 31, 2013
Account
Shares outstanding
Restatement
Parts of Year
Weighted Shares
Beginning balance;Add 5% common stock dividend from Jan. to April (1,941,600+97,080)
2,038,680
2
3/12
1,019,340
Conversion of preferred Stock (April – July)(422,400 +21,120)
2,482,200
2
3/12
1,241,100
Stock Split (July – Aug.)
4,964,400
1/12
413,700
Shares issued for factory Building
5,277,600
3/12
1,319,400
Treasury Stock (Nov. – Dec.)
5,246,700
2/12
874,450
Total no. of weighted average shares
4,867,990
Part B
Determine the number of shares used to compute diluted earnings per share for the year ended December 31, 2013.
Details
Number of shares
Total no. of weighted average shares
4,867,990
Add Convertible Preferred Stock still Outstanding (728,400 – 422,400) =306,000*2*1.05
642,600
Add Convertible Preferred Stock Converted 422,400*2*1.05*3/12
221,760
Total no. of shares used to calculate diluted earnings per share
5,732,350
Part C
Compute the adjusted net income to be used as the numerator in the basic earnings per share calculation for the year ended December 31, 2013.
Details
Amount $
After tax Net Income
11,900,000
Less Preferred dividend up to March 31(728,400 * $.75)
(546,300)
Preferred Dividend from April to December( 306,000 * $.75 *3)
(688,500)
Adjusted Net Income
10,665,200
Account
Shares outstanding
Restatement
Parts of Year
Weighted Shares
Beginning balance;Add 5% common stock dividend from Jan. to April (1,941,600+97,080)
2,038,680
2
3/12
1,019,340
Conversion of preferred Stock (April – July)(422,400 +21,120)
2,482,200
2
3/12
1,241,100
Stock Split (July – Aug.)
4,964,400
1/12
413,700
Shares issued for factory Building
5,277,600
3/12
1,319,400
Treasury Stock (Nov. – Dec.)
5,246,700
2/12
874,450
Total no. of weighted average shares
4,867,990
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