Question

1)Beta reported $6,000,000 in net income for the current year. The company had $500,000 of 10% non-convertible preferred stock outstanding all year and $5,000,000 of 6% convertible bonds outstanding all year. Assuming the convertible bonds are dilutive, determine the numerator of both basic and diluted EPS when the tax rate is 40%.

2)On February 4, 2016, Investor purchased 15% of Investee common stock for $62,000. Investee’s net income for the years ended December 31 2016 and 2017 were $18,000 and $56,000 respectively. Investee declared no dividends during 2016; however, during 2017, the company declared a $70,000 dividend. On December 31, 2016, the fair value of investee’s stock that investor owned had increased to $70,000; in 2017, it increased again to $75,000. What is the carrying value of the investment on investor’s December 31, 2016, balance sheet?

3)Tim had net income of $500,000 for both last year and the current year. The shares outstanding for the prior year was 100,000 shares for the whole year. On December 1 of the current year, he declared a two-for-one stock split. There were no other stock transactions in either year. Compute the EPS that would be shown on a comparative income statement for Years 1 and 2 (In other words, what are EPS for Years 1 and 2 on a split-adjusted basis?)

4)Alpha reported net income of $500,000 for the year. It has 200,000 shares of common stock outstanding all year. Two years ago the company granted 20,000 stock options that allow employees to purchase shares for $15 each. The company stock has averaged $20 in the market during the year. Compute the basic and diluted EPS.

Answer 1