Newton Company is preparing its annual earnings per share
amount
Newton Company is preparing its annual earnings per share
amounts to be disclosed on its 2007 income statement. It has collected the
following information at the end of 2007:
1. Net income: $120,400. Included in the net income is
income from continuing operations of $130,400 and an extraordinary loss (net of
income taxes) of $10,000. Corporate income tax rate, 30%.
2. Common stock outstanding on January 1, 2007: 20,000
shares.
3. Common stock issuances during 2007: July 6, 4,000 shares;
August 24, 3,000 shares.
4. Stock dividend: On October 19, 2007 the company declared
a 10% stock dividend that resulted in 2,700 additional outstanding shares of
common stock.
5. Common stock prices: 2007 average market price, $30 per
share; 2007 ending market price, $27 per share.
6. 7% preferred stock outstanding on January 1, 2007: 1,000
shares. Terms: $100 par, nonconvertible. Current dividends have been paid. No
preferred stock issued during 2007.
7. 8% convertible preferred stock outstanding on January 1,
2007: 800 shares. The stock was issued in 2006 at $130 per share. Each $100 par
preferred stock is currently convertible into 1.7 shares of common stock.
Current dividends have been paid. To date, no preferred stock has been
converted.
8. Bonds payable outstanding on January 1, 2007: $100,000
face value. These bonds were issued several years ago at 97 and pay annual
interest of 9.6%. The discount is being amortized in the amount of $300 per
year. Each $1,000 bond is currently convertible into 22 shares of common
stock. To date, no bonds have been converted.
9. Compensatory share options outstanding: Key executives
may currently acquire 3,000 shares of common stock at $20 per share. The options
were granted in 2006. To date, none have been exercised. The unrecognized
compensation cost (net of tax) related to the options is $4 per
share.
Required
1. Compute the basic earnings per share. Show supporting
calculations.
2. Compute the diluted earnings per share. Show supporting
calculations.
3. Show how Newton Company would report these earnings per
share figures on its 2007 income statement. Include an explanatory note to the
financial statements.
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