Question

Riggs Corporation has the following balance sheet information at December 31, 2016. Current liabilities $ 800,000...

Riggs Corporation has the following balance sheet information at December 31, 2016.

Current liabilities $ 800,000
Convertible bonds ($1,000 par, 5%) 2,000,000
Common stock ($1 par, 300,000 shares issued 300,000
Additional paid-in capital 2,100,000
Retained earnings 3,230,000
Treasury stock (43,000 shares) (1,161,000 )
Total liabilities and shareholders’ equity $ 7,269,000

The convertible bonds were issued at par in 2014 and are convertible into Riggs’s common stock at a ratio of 15 shares of stock to 1 bond. In its December 31, 2016 annual report, Riggs reported 125,000 exercisable qualified stock options. Each option allows the holder to acquire one share of common stock for $19 per share. All of the options were outstanding at the end of 2017. On October 1, 2017, Riggs purchased 32,000 shares of treasury stock for $50 per share. The average market price of the common stock during 2017 was $50 per share, and the December 31, 2017, price was $56. Riggs’s net income for the year ended December 31, 2017, was $825,000, and its tax rate was 35%.

Required:

Compute Riggs’s basic EPS for the year ended December 31, 2017.

Compute Riggs’s diluted EPS for the year ended December 31, 2017. There are no antidilutive securities.

(Round your answer to 2 decimal places.)

Hint:

Answer to Basic EPS is not 2.75

Answer to Diluted EPS is not 2.14 or 2.17

Homework Answers

Answer #1

1. Basic EPS = (Net Income - Preferred Dividend) / Weighted average common shares outstanding
= (825000 - 0) / 300,000 = $2.75

2. Convertible bonds = $2000000 / $1000 = 2000
Convertible bonds were issued at and are convertible into R common stock at a ratio of 15 shares of stock to 1 bond.

R reports 125000 exercisable qualified stock options.

Each option allows the bondholder to acquire one share of common stock for $19 per share.

R purchased 32000 shares of treasury stock for $50 per share.

Dilutive effect on exercisable qualified stock option = $125000/50 x 19 = 47500
= 125000 - 47500 = 77,500

Diluted EPS = (Net Income + After tax interest saving) /  Weighted average no. of ordinary shares
= [825000 + 65000(200000 x 0.65 x 0.05)] / [300000 + 30000(200000 / 1000 x 15) + 77500 + 8000(32000/12x3)
= $2.14

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Q3. Information from the financial statements of Henderson-Niles Industries included the following at December 31, 2016:...
Q3. Information from the financial statements of Henderson-Niles Industries included the following at December 31, 2016:   Common shares outstanding throughout the year 100 million   Convertible preferred shares (convertible into 25 million shares of common) 75 million   Convertible 10% bonds (convertible into 15.0 million shares of common) $ 1,900 million Henderson-Niles’ net income for the year ended December 31, 2016, is $820 million. The income tax rate is 40%. Henderson-Niles paid dividends of $2 per share on its preferred stock during...
At December 31, 2016, Morrison Company had 700 shares of common stock outstanding. On September 1,...
At December 31, 2016, Morrison Company had 700 shares of common stock outstanding. On September 1, 2017, an additional 300 shares of common stock were issued. In addition, Morrison had $20,000 of 8 percent convertible bonds outstanding at December 31, 2016, which are convertible into 400 shares of common stock. No bonds were converted into common stock in 2017. Net income for the year ended December 31, 2017, was $6,000. Assuming an income tax rate of 50 percent what would...
Pfizer company reported the following information as of December 31, 2016: Net income, $500,000 Number of...
Pfizer company reported the following information as of December 31, 2016: Net income, $500,000 Number of issued common shares, 225,000 shares Common stock (par value of $2 per share), $450,000 Number of authorized common shares, 400,000 Number of treasury shares, 25,000 No shares were issued or repurchased during 2016. How much would Pfizer report as its earnings-per-share (EPS) for 2016? If Pfizer repurchases 30,000 additional shares of treasury stock during 2017, what would be the number of shares outstanding as...
At December 31, 2017, Zeus Company had 800,000 shares of common stock outstanding. On October 1,...
At December 31, 2017, Zeus Company had 800,000 shares of common stock outstanding. On October 1, 2018, an additional 160,000 shares of common stock were issued. In addition, Zeus had $10,000,000 of 5% convertible bonds outstanding at December 31, 2017, which are convertible into 360,000 shares of common stock. No bonds were converted into common stock in 2018. The net income for the year ended December 31, 2018, was $2,500,000. Assuming the income tax rate was 30%, the diluted earnings...
On December 31, 2015, Berclair Inc. had 400 million shares of common stock and 5 million...
On December 31, 2015, Berclair Inc. had 400 million shares of common stock and 5 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2016, Berclair purchased 24 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2016. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2016, was $550 million. The income tax rate...
On December 31, 2017, Berclair Inc. had 220 million shares of common stock and 4 million...
On December 31, 2017, Berclair Inc. had 220 million shares of common stock and 4 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 32 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2018. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2018, was $200 million. Also outstanding at December...
Information from the financial statements of Ames Fabricators, Inc., included the following:    December 31 2018...
Information from the financial statements of Ames Fabricators, Inc., included the following:    December 31 2018 2017 Common shares 100,000 100,000 Convertible preferred shares (convertible into 34,000 shares of common) 13,200 13,200 10% convertible bonds (convertible into 20,000 shares of common) $ 1,000,000 $ 1,000,000 Ames’s net income for the year ended December 31, 2018, is $520,000. The income tax rate is 40%. Ames paid dividends of $5 per share on its preferred stock during 2018. Required: Compute basic and...
On December 31, 2015, Dow Steel Corporation had 650,000 shares of common stock and 35,000 shares...
On December 31, 2015, Dow Steel Corporation had 650,000 shares of common stock and 35,000 shares of 9%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 5% common stock dividend on May 15 and paid cash dividends of $450,000 and $74,000 to common and preferred shareholders, respectively, on December 15, 2016. On February 28, 2016, Dow sold 64,000 common shares. Also, as a part of a 2015 agreement for the acquisition of Merrill Cable Company, another 26,000 shares...
On December 31, 2017, Berclair Inc. had 560 million shares of common stock and 5 million...
On December 31, 2017, Berclair Inc. had 560 million shares of common stock and 5 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 168 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2018. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2018, was $1,050 million. Also outstanding at December...
In 2016, Blossom Ltd. issued $45,000 of 7% bonds at par, with each $1,000 bond being...
In 2016, Blossom Ltd. issued $45,000 of 7% bonds at par, with each $1,000 bond being convertible into 100 common shares. The company had revenues of $79,800 and expenses of $43,300 for 2017, not including interest and taxes (assume a tax rate of 20%). Throughout 2017, 1,800 common shares were outstanding, and none of the bonds were converted or redeemed. (For simplicity, assume that the convertible bonds’ equity element is not recorded.) Calculate diluted earnings per share for the year...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT