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13 June, 16:39

At December 31, 2021, the financial statements of Hollingsworth Industries included the following:

Net income for 2021 $ 520 million

Bonds payable, 8%, convertible

into 40 million shares of common stock $ 250 million

Common stock:

Shares outstanding on January 1 400 million

Treasury shares purchased for cash

on September 1 36 million

Additional dа ta:

The bonds payable were issued at par in 2019.

The tax rate for 2021 was 25%.

Compute basic and diluted EPS for the year ended December 31, 2019

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Answers (1)
  1. 13 June, 19:07
    0
    Basic EPS = $1.34 million

    Diluted EPS = $1.23 million

    Explanation:

    As per the data given in the question,

    Share on Jan-1 = 400 million

    On Sep 1 Treasury shares = 12 million (36 million * 4 months : 12 months)

    No. of shares = 400 - 12 = 388 million

    Basic EPS = Net income : number of outstanding shares

    = $520 million : 388 million

    = $1.34 million

    Diluted EPS:

    Net income = $520 million

    After tax interest saving = $8 (20 million - (40% * 20 million))

    The 20 million is come from

    = $520 million * 8%

    = 20 million

    Adjusted net income = $520 + $8 = $528 million

    No. of shares as computed above = 388 million

    Bond conversion shares = 40 million

    Total share outstanding = 388 + 40 = 428 million

    Diluted EPS = $528 million : 428 million

    = $1.23
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