000 SHARES OF COMMON STOCK WERE PURCHASED BY THE COMPANY AS TREASU...

100, - UNDERSTANDING INCOME STATEMENTS 1 100, - UNDERSTANDING INCOME STATEMENTS 1
UNDERSTANDING INCOME STATEMENTS 1
100,000 shares of common stock were purchased by the company as treasury stock on October 1.Indigo Corp.'s diluted earnings per share for 20X9 are closest to:غ A)$9.74.غ B)$8.49.ض C)$8.32.ExplanationIndigo's weighted average common shares = [(500,000 × 12) + (200,000 × 6) - (100,000 × 3)] / 12 = 575,000. Basic EPS =$5,600,000 / 575,000 = $9.74.For diluted EPS, assume the bonds were converted on January 1, and that interest payments were not made on the bonds.Increasing net income by the amount of bond interest net of tax = $5,600,000 + [6,000 × $1,000 × 0.05 × (1 − 0.40)] =$5,780,000. Diluted EPS = $5,780,000 / (575,000 + 120,000) = $8.32.

Question #33 of 90

Question ID: 414173

A 12 percent $100,000 convertible bond was issued on October 1, 2004. It is dilutive and can be converted into 18,000 shares.The effective income tax rate for the year was 40%. What adjustments should be made to calculate diluted earnings per share?Shares addedInterest addedto the numeratorto the denominator$3,000 4,500ض B)$1,800 4,500غ C)$3,000 18,000The interest expense for three months net of tax is added to the numerator (12% × $100,000 × 3/12 × 60 %) = $1,800. Thenumber of shares added to the denominator are 4,500. (18,000 × 3 / 12).

Question #34 of 90

Question ID: 414184

The Allen Corporation had 100,000 shares of common stock outstanding at the beginning of the year. Allen issued 30,000 sharesof common May 1. On July 1, the company issued a 10% stock dividend. On September 1, Allen issued 1,000, 10% bondsconvertible into 21 shares of stock each. What is the weighted average number of shares to be used in computing basic anddiluted earnings per share (EPS), assuming the convertible bonds are dilutive?Basic Shares Diluted Sharesض A)