Question

On June 1, 2015, Blossom Company and Blue Company merged to form Kingbird Inc. A total of 789,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis.

On April 1, 2017, the company issued an additional 636,000 shares of stock for cash. All 1,425,000 shares were outstanding on December 31, 2017.

Kingbird Inc. also issued $600,000 of 20-year, 9% convertible bonds at par on July 1, 2017. Each $1,000 bond converts to 38 shares of common at any interest date. None of the bonds have been converted to date.

Kingbird Inc. is preparing its annual report for the fiscal year ending December 31, 2017. The annual report will show earnings per share figures based upon a reported after-tax net income of $1,657,000. (The tax rate is 40%.)

Determine the following for 2017.

(a) The number of shares to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)

(1)		Basic earnings per share		enter a number of shares rounded to 0 decimal places		shares
(2)		Diluted earnings per share		enter a number of shares rounded to 0 decimal places		shares

(b) The earnings figures to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)

(1)		Basic earnings per share		$enter a dollar amount rounded to 0 decimal places
(2)		Diluted earnings per share		$

Answer 1

(a) The number of shares to be used for calculating:

Basic earnings per share	1266000
Diluted earnings per share	1277400

(b) The earnings figures to be used for calculating:

Basic earnings per share	$1657000
Diluted earnings per share	$1673200

Explanations :-

(a1)

Dates	Shares	Weight	Weighted Shares
Jan 1, 2015 – Apr 1, 2015	789000	3/12	197250
Apr 1, 2015 – Dec 31, 2015	1425000	9/12	1068750
			1266000

(a2)

Dates	Shares	Weight	Weighted Shares
Jan 1, 2015 – Apr 1, 2015	789000	3/12	197250
Apr 1, 2015 – July 1, 2015	1425000	3/12	356250
July 1, 2015 – Dec 31, 2015	(1425000+22800) =1447800	6/12	723900
			1277400

Bonds converted to shares = ($600000/$1000)*38 = 22800

(b1) $1657000 (given as above)

(b2)

Net Income	$1657000
Interest Saving ($600000 * 9% * ½)	$27000
Less: Additional Tax ($27000 * 40%)	$10800
Adjusted Net Income	$1673200