On June 1, 2015, Waterway Company and Wildhorse Company merged to form Sheffield

Question

On June 1, 2015, Waterway Company and Wildhorse Company merged to form Sheffield Inc. A total of 802,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis.

On April 1, 2017, the company issued an additional 625,000 shares of stock for cash. All 1,427,000 shares were outstanding on December 31, 2017.

Sheffield Inc. also issued $600,000 of 20-year, 8% convertible bonds at par on July 1, 2017. Each $1,000 bond converts to 38 shares of common at any interest date. None of the bonds have been converted to date.

Sheffield Inc. is preparing its annual report for the fiscal year ending December 31, 2017. The annual report will show earnings per share figures based upon a reported after-tax net income of $1,507,000. (The tax rate is 40%.)

Determine the following for 2017.

(a) The number of shares to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)

(b) The earnings figures to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)

(1) Basic earnings per share

shares (2) Diluted earnings per share

shares

Explanation / Answer

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a. Date Share weight Weighted average no of share Jan 1 2017 to April1 2017 802000 3/12 200500 April 1 2017 to December 31 2017 1427000 9/12 1070250 1270750 Answer a1 Date Share weight Weighted average no of share Jan 1 2017 to April1 2017 802000 3/12 200500 April 1 2017 to July 1 2017 1427000 3/12 356750 July 1 2017 to December 31 2017 1449800 6/12 724900 (600000/1000*38)=22800+1427000 1282150 Answer a2 B1 and B2 Basic Diluted Net Income 1507000 1507000 Interest On Bond (600000*8%*1/2 years) 24000 Tax Saving (24000*40%) -9600 Adjusted Net Income 1507000 1521400 No of shares weighted 1270750 1282150 Earning per share(Adjusted net income/weighted no of share)          1.19          1.19

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