Question

PART 1 Bonita Corporation had 116,400 shares of stock outstanding on January 1, 2020. On May...

PART 1

Bonita Corporation had 116,400 shares of stock outstanding on January 1, 2020. On May 1, 2020, Bonita issued 68,400 shares. On July 1, Bonita purchased 9,240 treasury shares, which were reissued on October 1.

Compute Bonita’s weighted-average number of shares outstanding for 2020.

Weighted-average number of shares outstanding

  

PART 2

Larkspur Corporation reported net income of $181,440 in 2020 and had 45,900 shares of common stock outstanding throughout the year. Also outstanding all year were 5,400 shares of cumulative preferred stock, each convertible into 2 shares of common. The preferred stock pays an annual dividend of $5 per share. Larkspur’s tax rate is 50%.

Compute Larkspur’s 2020 diluted earnings per share. (Round answer to 2 decimal places, e.g. 3.55.)

Diluted earnings per share

$

Homework Answers

Answer #1

Part 1

Months

No. of months

No. of shares

No. of shares outstanding

Calculation

Weighted average shares

January to April

4

116,400

116,400

116400*4/12

38,800

May to June

2

116,400+68,400

184,800

184800*2/12

30,800

July to September

3

184800 – 9240

175,560

175560*3/12

43,890

October to December

3

175560 + 9240

184,800

184800*3/12

46,200

Weighted average number of shares

159,690

Part 2

When preferred shares would be converted into equity, the net income will rise.

Adjusted net income = 181,440 + (5400*5*50%) = $ 194,940

Adjusted number of shares = 45,900 + 5400*2 = 56,900

Diluted EPS = Adjusted net income/Adjusted number of shares = 194,940/56900 = 3.43

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