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AccountingIntermediate Accounting: Reporting And Analysis3rd Edition

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Chapter 16, Problem 28E
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Intermediate Accounting: Reporting...

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

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Problem 6GI
Problem 7GI
Problem 8GI
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Problem 2E
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Problem 8E
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Problem 10E
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Problem 12E
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Problem 18E
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Problem 20E
Problem 21E
Problem 22E
Problem 23E
Problem 24E
Problem 25E
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Problem 28E
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Problem 4P
Problem 5P
Problem 6P
Problem 7P
Problem 8P
Problem 9P
Problem 10P
Problem 11P
Problem 12P
Problem 13P
Problem 14P
Problem 15P
Problem 16P
Problem 17P
Problem 18P
Problem 19P
Problem 20P
Problem 21P
Problem 22P
Problem 23P
Problem 24P
Problem 25P
Problem 26P
Problem 1C
Problem 2C
Problem 3C
Problem 4C
Problem 5C
Problem 6C
Problem 7C
Problem 9C
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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Francis Company has 20,000 shares of common stock out-standing during all of 2019. It also has two convertible securities outstanding at the end of 2019. These are:

  1. 1. Convertible preferred stock: 2,000 shares of 9.5%, $50 par, preferred stock were issued on January 2, 2019, for $60 per share. Each share of preferred stock is convertible into 3 shares of common stock. Current dividends have been declared. To date, no preferred stock has been converted.
  2. 2. Convertible bonds: Bonds with a face value of $200,000 and an interest rate of 5.7% were issued at par in 2018. Each $1,000 bond is convertible into 22 shares of common stock. To date, no bonds have been converted.

Francis earned net income of $61,500 during 2019. Its income tax rate is 30%.

Required:

Compute the 2019 diluted earnings per share. What earnings per share amount(s) would Francis report on its 2019 income statement?

To determine

Calculate the diluted earnings per share and also identify the earnings per share amount that Company F must report in its 2019 income statement.

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.

(Figure 1)

Working notes:

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

Numerator earnings per share = Net income −Preferred dividend=$61,500−$9,500(2,000×50×9.5%)=$52,000

(2) Calculate the number of shares increased in common shares:

Number of shares increased in common shares }=[(Number of bonds convertible into common stock)×Face value of bondValue Bonds  convertible ]=22×$200,0001,000=4,400

(3) Calculate the amount of earnings on bond interest expense savings:

Amount of earnings on 

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Ch-16 P-1GICh-16 P-2GICh-16 P-3GICh-16 P-4GICh-16 P-5GICh-16 P-6GICh-16 P-7GICh-16 P-8GICh-16 P-9GICh-16 P-10GI
Ch-16 P-11GICh-16 P-12GICh-16 P-13GICh-16 P-14GICh-16 P-15GICh-16 P-16GICh-16 P-17GICh-16 P-18GICh-16 P-19GICh-16 P-20GICh-16 P-21GICh-16 P-22GICh-16 P-23GICh-16 P-1MCCh-16 P-2MCCh-16 P-3MCCh-16 P-4MCCh-16 P-5MCCh-16 P-6MCCh-16 P-7MCCh-16 P-8MCCh-16 P-9MCCh-16 P-10MCCh-16 P-1RECh-16 P-2RECh-16 P-3RECh-16 P-4RECh-16 P-5RECh-16 P-6RECh-16 P-7RECh-16 P-8RECh-16 P-9RECh-16 P-10RECh-16 P-11RECh-16 P-12RECh-16 P-1ECh-16 P-2ECh-16 P-3ECh-16 P-4ECh-16 P-5ECh-16 P-6ECh-16 P-7ECh-16 P-8ECh-16 P-9ECh-16 P-10ECh-16 P-11ECh-16 P-12ECh-16 P-13ECh-16 P-14ECh-16 P-15ECh-16 P-16ECh-16 P-17ECh-16 P-18ECh-16 P-19ECh-16 P-20ECh-16 P-21ECh-16 P-22ECh-16 P-23ECh-16 P-24ECh-16 P-25ECh-16 P-26ECh-16 P-27ECh-16 P-28ECh-16 P-1PCh-16 P-2PCh-16 P-3PCh-16 P-4PCh-16 P-5PCh-16 P-6PCh-16 P-7PCh-16 P-8PCh-16 P-9PCh-16 P-10PCh-16 P-11PCh-16 P-12PCh-16 P-13PCh-16 P-14PCh-16 P-15PCh-16 P-16PCh-16 P-17PCh-16 P-18PCh-16 P-19PCh-16 P-20PCh-16 P-21PCh-16 P-22PCh-16 P-23PCh-16 P-24PCh-16 P-25PCh-16 P-26PCh-16 P-1CCh-16 P-2CCh-16 P-3CCh-16 P-4CCh-16 P-5CCh-16 P-6CCh-16 P-7CCh-16 P-9C

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