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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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Tama Company’s capital structure consists of common stock and convertible bonds. At the beginning of 2019, Tama had 15,000 shares of common stock outstanding; an additional 4,500 shares were issued on May 4. The 7% convertible bonds have a face value of $80,000 and were issued in 2016 at par. Each $1,000 bond is convertible into 25 shares of common stock; to date, none of the bonds have been converted. During 2019, the company earned net income of $79,200 and was subject to an income tax rate of 30%.

Required:

Compute the 2019 diluted earnings per share.

To determine

Calculate the diluted earnings per share.

Explanation

Earnings per share (EPS):

The amount of net income available to each shareholder per common share outstanding is referred to as earnings per share (EPS).

Calculate the diluted earnings per share.

Diluted earnings per share =Net earnings (2) Weighted number of shares outstanding (4) =$83,21020,000=$4.16

Working notes:

(1) Calculate the number of shares outstanding on common stock:

Number of shares outstanding = [(Number of shares of common stock outstanding )×Time  period]+[(Number of shares of common stock outstanding +Issue of additional shares )×Time  period]=[15,000×4(January to April)12]+[(15,000+4,500)×8(May to December)12]=5,000+13,

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