Question

1. Windsor Corporation had 318,000 shares of common stock outstanding on January 1, 2017. On May 1, Windsor issued 31,500 shares.

(a) Compute the weighted-average number of shares outstanding if the 31,500 shares were issued for cash.

Weighted-average number of shares outstanding

$

(b) Compute the weighted-average number of shares outstanding if the 31,500 shares were issued in a stock dividend.

Weighted-average number of shares outstanding

$

2. Sarasota Corporation reported net income of $230,000 in 2017 and had 47,700 shares of common stock outstanding throughout the year. Also outstanding all year were 4,900 shares of cumulative preferred stock, each convertible into 2 shares of common. The preferred stock pays an annual dividend of $5 per share. Sarasota’s tax rate is 30%.

Compute Sarasota’s 2017 diluted earnings per share. (Round answer to 2 decimal places, e.g. 3.55.)

Diluted earnings per share

$

3. Pronghorn Corporation reported net income of $386,100 in 2017 and had 217,000 shares of common stock outstanding throughout the year. Also outstanding all year were 51,000 options to purchase common stock at $10 per share. The average market price of the stock during the year was $15.

Compute diluted earnings per share. (Round answer to 2 decimal places, e.g. 3.55.)

Diluted earnings per share

$

Answer 1

Solution

1)

(a) Weighted-average number of shares outstanding = (318,000 × 4/12) + [(318,000 + 31,500) × 8/12] = 339,000

(b) Weighted-average number of shares outstanding = 318,000 + 31,500 = 349,500

2) Basic earning per share = (230000-4900*5)/47700 = 4.31 per share

Diluted earning per share = Adjusted net income/Adjusted shares = 230000/(4900*2+47700) = 4 per share

3)

Proceeds from options	510000	=51000*10
Shares that can be purchased from proceeds	34000	=510000/15
Shares used for diluted EPS	17000	=51000-34000
Net income	386100
Divide by Total Common shares	234000	=217000+17000
Diluted earnings per share	1.65

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