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Chapter 16: Q14BE. (page 875)

DiCenta Corporation reported net income of \(270,000 in 2017 and had 50,000 shares of common stock outstanding throughout the year. Also outstanding all year were 5,000 shares of cumulative preferred stock, each convertible into 2 shares of common. The preferred stock pays an annual dividend of \)5 per share. DiCenta’s tax rate is 40%. Compute DiCenta’s 2017 diluted earnings per share.

Short Answer

Expert verified

DiCenta’s 2017 diluted earnings per share are $4.50.

Step by step solution

01

The following information is given

Net Income: $270,000

Common stock outstanding: $50,000

Preferred stock of 5,000 shares are converted into 2 shares of common stock.

The annual dividend is $5 per share.

Tax rate: 40%

02

Computation of Diluted EPS

Net income

$270,000

Weighted-average number of shares adjusted for dilutive securities (50,000 + 10,000)

÷ 60,000

Diluted EPS

$4.50

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Most popular questions from this chapter

Douglas Corporation had 120,000 shares of stock outstanding on January 1, 2017. On May 1, 2017, Douglas issued 60,000 shares. On July 1, Douglas purchased 10,000 treasury shares, which were reissued on October 1. Compute Douglas’s weighted-average number of shares outstanding for 2017.

Assume that Sarazan Company has a share-option plan for top management. Each share option represents the right to purchase a \(1 par value ordinary share in the future at a price equal to the fair value of the shares at the date of the grant. Sarazan has 5,000 share options outstanding, which were granted at the beginning of 2017. The following data relate to the option grant.

Exercise price for options \)40

Market price at grant date (January 1, 2017) \(40

Fair value of options at grant date (January 1, 2017) \)6

Service period 5 years

Instructions

(a) Prepare the journal entry(ies) for the first year of the share-option plan.

(b) Prepare the journal entry(ies) for the first year of the plan assuming that, rather than options, 700 shares of restricted shares were granted at the beginning of 2017.

(c) Now assume that the market price of Sarazan shares on the grant date was $45 per share. Repeat the requirements for (a) and (b).

(d) Sarazan would like to implement an employee share-purchase plan for rank-and-file employees, but it would like to avoid recording expense related to this plan. Explain how employee share-purchase plans are recorded?

What are the computational guidelines for determining whether a convertible security is to be reported as part of diluted earnings per share?

Anazazi Co. offers all its 10,000 employees the opportunity to participate in an employee share-purchase plan. Under the terms of the plan, the employees are entitled to purchase 100 ordinary shares (par value \(1 per share) at a 20% discount. The purchase price must be paid immediately upon acceptance of the offer. In total, 8,500 employees accept the offer, and each employee purchases on average 80 shares at \)22 per share (market price \(27.50). Under IFRS, Anazazi Co. will record:

(a) no compensation since the plan is used to raise capital, not compensate employees.

(b) compensation expense of \)5,500,000.

(c) compensation expense of \(18,700,000.

(d) compensation expense of \)3,740,000.

The 2017 income statement of Wasmeier Corporation showed net income of \(480,000 and a loss from discontinued operations of \)120,000. Wasmeier had 100,000 shares of common stock outstanding all year. Prepare Wasmeier’s income statement presentation of earnings per share.
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