Assume that the following data relative to Kane Company for 2015 is available: Net...

Question:

Assume that the following data relative to Kane Company for 2015 is available:

Net Income $2,790,000

Transactions in Common Shares Change Cumulative
Jan. 1, 2015, beginning number 710,000
Mar. 1, 2015, Purchase of treasury shares (65,400) 644,600
June 1, 2015, Stock split 2-1 644,600 1,289,200
Nov. 1, 2015, Issuance of shares 258,000 1,547,200
8% Cumulative Convertible Preferred Stock


Sold at par, convertible into 220,000 shares of common (adjusted for split) $1,100,000
Stock Options
Exercisable at the option price of $25 per share. Average market price in 2015, $30 (market price and option price adjusted for split) 84,000 shares

Compute the diluted earnings per share for 2015.

Diluted earnings per share $_____

Diluted Earnings Per Share:

Diluted Earnings Per Share is computed by dividing the adjusted income by the weighted average number of shares. The diluted earnings per share are lower than the basic earnings per share.

Answer and Explanation:

Compute diluted EPS as follows:

Computation for weighted average number of shares
Transactions in Common Shares Change Cumulative (a) Period of outstanding  (b) Weighted Number of Shares (a x b)
Jan. 1, 2015, beginning number 710,000 2/12 118,333
Mar. 1, 2015, Purchase of treasury shares -65,400 644,600 3/12 161,150
June 1, 2015, Stock split 2-1 644,600 1,289,200 5/12 537,167
Nov. 1, 2015, Issuance of shares 258,000 1,547,200 2/12 257,867
Convertible Preference share 220,000 12/12 220,000
Stock Options Equity Elements 84,000 x ($30-$25) / $30) 14,000 12/12 14,000
Weighted Average Number of Shares (A) 1,308,517
Computation for adjusted Income
Particulars
Net Income $2,790,000
Add: Savings for preference dividend ($1,100,000 x 8%) $88,000
Adjusted Income (B) $2,878,000
Diluted EPS (B/A) $2.20


Learn more about this topic:

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How to Calculate Earnings Per Share: Definition & Formula

from Introduction to Business: Homework Help Resource

Chapter 24 / Lesson 14
111K

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