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Nolte Co. has 4,000,000 ordinary shares outstanding on December 31, 2015. An additional 200,000 shares are...

Nolte Co. has 4,000,000 ordinary shares outstanding on December 31, 2015. An additional 200,000 shares are issued on April 1, 2016, and 480,000 more on September 1. On October 1, Nolte issued $6,000,000 of 9% convertible bonds. The bonds are dilutive. Each $1,000 bond is convertible into 40 ordinary shares. No bonds have been converted. The number of shares to be used in computing basic earnings per share and diluted earnings per share on December 31, 2016 is

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Answer #1

Solution:

Number of Shares to be used in computing basic earnings per share on December 31, 2016 is 4310000 shares.

Explanation:

4000000 shares + (200000 x 9/12)* shares + (480000 x 4/12)* shares

= 4310000 shares.

*Note: Shares issued on April 1, 2016 have been outstanding for a period of 9 months (April to December) and those issued on September 1,2016 have been outstanding for 4 months period (September to December).

Number of Shares to be used in computing diluted earnings per share on December 31, 2016 is 4370000 shares.

Explanation:

4310000 shares + (6000 bonds x 40 shares per bond x 3/12)

= 4370000 shares.

Note:

· Number of bonds = $6000000/$1000 = 6000 bonds

· The shares arising from conversion of bonds are multiplied with 3/12 because they have been outstanding for 3 months i.e., from October 1, 2016 to December 31, 2016.

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