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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Winona Company began 2019 with 10,000 shares of $10 par common stock and 2,000 shares of 9.4%, $100 par, convertible preferred stock outstanding. On April 2 and June 1, respectively, the company issued 2,000 and 6,000 additional shares of common stock. On November 16, Winona declared a 2-for-1 stock split. The preferred stock was issued in 2018. Each share of preferred stock is currently convertible into 4 shares of common stock. To date, no preferred stock has been converted. Current dividends have been paid on both preferred and common stock. Net income after taxes for 2019 totaled $109,800. The company is subject to a 30% income tax rate. The common stock sold at an average market price of $24 per share during 2019.

Required:

  1. 1. Prepare supporting calculations for Winona and compute its:
    1. a. basic earnings per share
    2. b. diluted earnings per share
  2. 2. Show how Winona would report the earnings per share on its 2019 income statement. Include an accompanying note to the financial statements.
  3. 3. Next Level Assume Winona uses IFRS. Discuss what Winona would do differently for computing earnings per share, and then repeat Requirement 1 under IFRS.

1.

To determine

Compute (a) basic earnings per share and (b) diluted earnings per share and also provide its supporting calculations.

Explanation

Compute the earnings per share and dilute earnings per share.

(Figure 1)

Working notes:

1) Calculate the numerator for the basic earnings per share:

Numerator earnings per share = Net income Preferred dividend=$109,800$18,800(2,000×100×9.4%)=$91,000

(2) Calculate the number of shares used in computing the basic earnings per share:

(Figure 2)

(3) Calculate the increase in the share options:

Increase in the share options}=(Number of shares issued )[((Number of shares acquired)×[Stock pric per share+ Share option per share])Average per share]

2.

To determine

State the manner by which Company W will report its earnings per share on its 2019 income statement and also provide its necessary notes on financial statement.

3.

To determine

State the manner by which computation of earnings per share will be different if Company W uses IFRS.

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