AFM391 Lecture Notes - Lecture 8: Net Income, Income Statement, Financial Instrument

119 views9 pages

emeraldherring911

18 Dec 2015

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM391

Professor

Duane Kennedy

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Common shareholders need to know how much of a company"s available income can be attributed to the shares that they own. Help assess future dividend payouts and the value of each share. Common shareholders have a residual interest in the company. Return on investment not based on predetermined interest rate, the passage of time or a face value. Common shareholders gain the most if does well. Common shareholders lose the most if does not well. Done for both basis eps and diluted eps. Basic eps looks at actual earnings and the actual number of common shares outstanding with this number prorated for the amount of time that the shares have been outstanding. Diluted eps a what if calculation that takes into account the possibility that financial instruments such as convertible debt and options might have a negative impact on existing shareholder returns and the shares value. Required to report eps on the face of the income statement.

Related Questions

For 2013, Behrend Corp. originally reported basic EPS of $2.00 and diluted EPS of $1.80. At the end of 2014, Behrend distributed a 2 for 1 stock split. In reporting the 2013, comparative amounts in the 2014 annual report, the basic and diluted EPS amounts will be respectively reported at:

$2.00/share, $1.80/share

$1.00/share, $.90/share

$1.00/share, $1.80/share

$2.00/share, $.90/share

Throughout 2014, Behrend Corporation had 900,000 shares of common stock and 50,000 shares of $6 nonconvertible preferred stock outstanding. Behrend declared and paid the annual cash dividend of $300,000 to preferred shareholders during 2014.
On January 1, 2014, Behrend issued $2,000,000 of convertible 5% bonds at face value. Each $1,000 bond is convertible into 20 common shares, but none were converted during 2014.
Behrendâs net income for the year ended December 31, 2014, was $3.9 million. The income tax rate is 40%, and Behrend reported no below-the-line items.

What is Behrendâs basic earnings per share for 2014, rounded to the nearest cent?

$4.33

$4.00

$3.00

None of these is correct.

On January 1, 2014, Behrend issued $2,000,000 of convertible 5% bonds at face value. Each $1,000 bond is convertible into 20 common shares, but none were converted during 2014.
Behrendâs net income for the year ended December 31, 2014, was $3.9 million. The income tax rate is 40%, and Behrend reported no below-the-line items.

What will Behrend report as diluted earnings per for 2014, rounded to the nearest cent?

$3.83

Francis Company has 12,000 shares of common stock outstanding at the beginning of 2013. Francis issued 1,500 additional shares on May 1 and 1,000 additional shares on September 30. It also has two convertible securities outstanding at the end of 2013. These are:

Convertible preferred stock: 1,250 shares of 8.5%, $50 par, preferred stock were issued on January 2, 2010, for $55 per share. Each share of preferred stock is convertible into 3 shares of common stock. Current dividends have been declared and paid. To date, no preferred stock has been converted.

Convertible bonds: Bonds with a face value of $125,000 and an interest rate of 5.5% were issued at par in 2012. Each $1,000 bond is convertible into 20 shares of common stock. To date, no bonds have been converted.

Francis earned net income of $50,000 during 2013. The income tax rate is 30%

1) Calculate basic earnings per share for 2013. If required, round your answer to the nearest cent..

2). Calculate diluted earnings per share for 2013 and the incremental EPS of the preferred stock and convertible bonds. If required, round your answers to the nearest cent.

Diluted earnings per share: xxxxxx

3) Incremental Earning Per share xxxxx

a) Bonds xxxxxx

b) Preferred xxxxx

JohnBoy Company had operating income of $500,000 last year. Hehas two bonds outstanding. One bond is a convertible $500,000, 6%interest bond that is due in ix years. The bond is convertible into30,000 shares of stock. The other bond is a $200,000, 4%, bond thatis due in 8 years and that is convertible into 8,000 shares ofcommon stock. JohnBoy has 80,000 shares of stock outstanding and a30% tax rate. In addition, there are 5,000 options outstanding thatcan be converted to Lowry's common stock at $12 each.

Calculate JohnBoy's basic and diluted earnings per share. (Whencalculating the diluted EPS, you must do each bond separately tomake sure it is dilutive)

AFM391 Lecture Notes - Lecture 8: Net Income, Income Statement, Financial Instrument

Document Summary

Get access

Related Documents

AFM391 Chapter 17: Earnings-per-Share

AFM391 Chapter Notes - Chapter 15: Common Stock, Capital Structure, Financial Instrument

AFM391 Chapter Notes - Chapter 15: Leveraged Buyout, Issued Shares, Liquidating Distribution

Related Questions