Exercise 2 Lola Inc. must compute EPS for its 2020 reports. The following information is available to the controller. • Net income is $30 million (before tax it is $50 million). • Common stock (20 million shares authorized; 15 million shares outstanding January 1, 2020). • Cumulative convertible preferred stock (2 million shares issued August 1, 2017, and outstanding January 1, 2020). The stock was issued at $50 a share with a yearly $4 dividend declared and paid semiannually on June 30 and December 31. The stock is convertible on a share-for-share basis adjusted automatically for any stock dividends or splits. Dividends are paid for time stock is held. • March 1, 2020: Half of the preferred stock was converted to common stock. • April 1, 2020: Lola declared a 10% stock dividend. • July 1, 2020: One million shares of stock were issued in the acquisition of Grande Corporation. The stock’s fair value at this time was $15 a share. • October 1, 2020: Lola purchased and retired 600,000 shares of its common stock for $700,000. • All preferred dividends were declared and paid. Required 1. Compute the number of shares to be used in computing basic EPS for 2020. 2. Compute the number of shares to be used in computing diluted EPS for 2020. 3. Compute basic EPS.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter16: Retained Earnings And Earnings Per Share

Section: Chapter Questions

Problem 23P

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Exercise 2

Lola Inc. must compute EPS for its 2020 reports. The following information is available to the controller.

• Net income is $30 million (before tax it is $50 million).
• Common stock (20 million shares authorized; 15 million shares outstanding January 1, 2020).
• Cumulative convertible preferred stock (2 million shares issued August 1, 2017, and outstanding January 1, 2020). The stock was issued at $50 a share with a yearly $4 dividend declared and paid semiannually on June 30 and December 31. The stock is convertible on a share-for-share basis adjusted automatically for any stock dividends or splits. Dividends are paid for time stock is held.
• March 1, 2020: Half of the preferred stock was converted to common stock.
• April 1, 2020: Lola declared a 10% stock dividend.
• July 1, 2020: One million shares of stock were issued in the acquisition of Grande Corporation. The stock’s fair value at this time was $15 a share.
• October 1, 2020: Lola purchased and retired 600,000 shares of its common stock for $700,000.
• All preferred dividends were declared and paid.

Required

1. Compute the number of shares to be used in computing basic EPS for 2020.

2. Compute the number of shares to be used in computing diluted EPS for 2020.

3. Compute basic EPS.

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