Question

Abby Company had 150,000 shares of common stock outstanding on January 1, 2018. On September 30,...

Abby Company had 150,000 shares of common stock outstanding on January 1, 2018. On September 30, 2018, Abby sold 30,000 shares of common stock for cash. Abby also had 100, 8%, convertible bonds outstanding throughout 2018. Each $1,000 bond is convertible into 20 shares of common stock. The bonds sold originally at face value. The company also had 10,000 executive stock options outstanding that allowed executives to purchase shares of stock for $11.00. The average share price for the year was $9.50. Reported net income for 2018 was $500,000 with a 40% tax rate. Common shareholders receive $2.50 per share dividends in 2018.

Compute basic and diluted earnings per share (rounded to 2 decimal places) for 2018.

Homework Answers

Answer #1
ans Basic EPS in $
Net Income/weighted average common stock outstanding
500000/((150000*12/12)+(30000*3/12)) 3.17 answer
Diluted earnings per share
Net Income+after tax interest/ weighted share+potention shares
(500000+4800)/((150000*12/12)+(30000*3/12)+2000) 3.16 answer
Potential shares
Convertible bonds into share
100*20 2000
Stock options
It is anti dilutive as market price is less than the purchase price
of stock
Interest after tax 4800
100*1000*8%*(1-.4)
If any doubt please comment.
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