Computing Basic and Diluted EPS, Convertible Bonds, Options, Convertible Preferred Stock, Antidilution, Disclosures. We present Gamba Incorporated’s current-year partial income statement:
Gamba is subject to a 35% income tax rate.
Partial Income Statement | Current Year |
Income from Continuing Operations | $1,250,990 |
Discontinued operations—Income, net of tax | 533,060 |
Net Income | $1,784,050 |
A partial balance sheet for the current year follows.
Partial Balance Sheet | Current Year |
Liabilities: | |
5% Convertible Debt - Issued at $1,000 par* | $8,113,000 |
Stockholders’ Equity: | |
Common Stock, no par (1,032,000 shares issued and outstanding)* * | $5,160,000 |
$3 Convertible Preferred Stock. $100 par value (42, 500 shares issued and outstanding)*** | 4,250,000 |
Additional Paid-in Capital—Stock Options (employee options to acquire 167,500 shares)**** | (1,842,500) |
Footnotes to the Balance Sheet:
* Each bond is convertible into 80 shares of common stock. The bonds are outstanding all year
** The number of shares issued and outstanding did not change throughout the year.
*** Each
***** The options are exercisable at $21 per share and the average market price of the company’s stock for the year is $35. The options were outstanding all year.
Required
- a. Based on the information provided, compute basic and diluted earnings per share for the current year Include all computations related to the application of antidilution sequencing if needed.
- b. Prepare the income statement disclosures required beginning with income from continuing operations.
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