Nosloc Corp. had $800,000 net income in 2019. On January 1, 2019 there were 200,000 shares of common stock outstanding. On April 1, 20,000 shares were issued and on September 1, Nosloc bought 30,000 shares of treasury stock. There are 30,000 options to buy common stock at $40 a share outstanding. The market price of the common stock averaged $50 during 2019. The tax rate is 40%. During 2019, there were 40,000 shares of convertible preferred stock outstanding. The preferred is $100 par, pays $3.50 a year dividend, and is convertible into three shares of common stock. Nosloc issued $2,000,000 of 8% convertible bonds at face value during 2018. Each $1,000 bond is convertible into 30 shares of common stock. Instructions Compute diluted earnings per share for 2019. Show all computations.

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Business

Bentley Humphrey

27 February, 14:12

Nosloc Corp. had $800,000 net income in 2019. On January 1, 2019 there were 200,000 shares of common stock outstanding. On April 1, 20,000 shares were issued and on September 1, Nosloc bought 30,000 shares of treasury stock. There are 30,000 options to buy common stock at $40 a share outstanding. The market price of the common stock averaged $50 during 2019. The tax rate is 40%. During 2019, there were 40,000 shares of convertible preferred stock outstanding. The preferred is $100 par, pays $3.50 a year dividend, and is convertible into three shares of common stock. Nosloc issued $2,000,000 of 8% convertible bonds at face value during 2018. Each $1,000 bond is convertible into 30 shares of common stock. Instructions Compute diluted earnings per share for 2019. Show all computations.

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Harper Stevens · Answer 1

diluted EPS = $2.05

Explanation:

diluted earnings per share = net income / (weighted common stocks outstanding + diluted shares).

net income = $800,000

weighted common stocks outstanding:

January 1, 200,000 common stocks

April 1, 20,000 stocks issued = 20,000 x 9/12 = 15,000 common stocks

September 1, 30,000 treasury stocks purchased = - 30,000 x 4/12 = - 10,000

total weighted stocks outstanding = 205,000

diluted shares:

30,000 options at $40 per stock = [ ($50 - $40) / $50] x 30,000 = 6,000

2,000 bonds x 30 stocks = 60,000

preferred stock = 40,000 x 3 = 120,000

total diluted shares = 186,000

diluted EPS = $800,000 / (205,000 + 186,000) = $2.05