Question

At January 1, 2021, Canaday Corporation had outstanding the following securities: 670 million common shares 20...

At January 1, 2021, Canaday Corporation had outstanding the following securities:

670 million common shares
20 million 5% cumulative preferred shares, $50 par
6.4% convertible bonds, $2,000 million face amount, convertible into 80 million common shares

The following additional information is available:

  • On September 1, 2021, Canaday sold 78 million additional shares of common stock.
  • Incentive stock options to purchase 50 million shares of common stock after July 1, 2020, at $10 per share, were outstanding at the beginning and end of 2021. The average market price of Canaday’s common stock was $20 per share during 2021.
  • Canaday's net income for the year ended December 31, 2021, was $1,658 million. The effective income tax rate was 25%.


Required:
1. & 2. Calculate basic and the diluted earnings per common share for the year ended December 31, 2021. (Round "Earnings per share" answers to 2 decimal places. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

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Answer #1

Canaday Corporation

Calculation of Basic earning per share and diluted earnings per common share -

Basic EPS calculated as

Net income - Preferred dividend / weighted average of common share outstanding during the period

= $1658 - $50 / ( 670 *12/12 ) + (78 * 4/12 )

=$1608 /696

Basic EPS= $2.31

Diluted EPS calculated as

Net income - Prefered dividend + interest of convertible bond before tax / Average of outstanding shares + diluted shares*

= $1658 -50 + $96 / 696 + 96.66

= $1704 /792.66

Diluted EPS=$2.14

Notes -

Preference dividend = 20 million shares *$50 * 5%

=50

The interest of convertible bond before tax  

= 2000 million * 6.4% *(1-.25%)

=$96

Diluted shares -

=bond convertible into shares + stock option

= 80 + 16.66 ( 50million shares - 50*12/18)

=$96.66

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