Chapter 16 Quiz Fall 2012
Name: __________________________
Basic and diluted EPS.
Presented below is information related to Avatar Corporation.
1. Net Income [including an extraordinary gain (net of tax) of $60,000]
2. Capital Structure
a. Cumulative 8% preferred stock, $120 par,
15,000 shares issued and outstanding
$600,000
$1,800,000
b. $10 par common stock, 200,000 shares outstanding on January 1.
On March 1, 60,000 shares were issued for cash. On August 1,
35,000 shares were purchased and retired.
$2,354,160
c. The corporation has $850,000, 5-year, 15% bonds issued at par in 2009.
Each $500 bond is convertible into 20 shares of common stock after 10/25/10.
d. There were stock warrants for 9,000 shares of stock outstanding for the entire
year. The warrants allowed the holder to purchase a share of stock for $30.
3. Other Information
a. Average market price per share of common stock during entire year
b. Income tax rate
Instructions
Compute basic and diluted earnings per share for the current year.
Change in
shares
60000
-35000
shares
outstanding
200000
260000
225000
transaction of
year
2/12
5/12
5/12
WA
33333
108333
93750
235416
Basic EPS: (600,000 – 144,000) / 235,416 = 1.94
Convertible Bonds: 850,000*15%*(1-30%) = 89,250 = 2.63 >1.94 (Antidilutive)
850,000/500*20
34,000
Options 9,000 * 30 = 270,000 / 60 =4500
9,000 - 4500 =4,500
Diluted EPS = (600,000- 144,000)/(235,416+4,500) = 456000/239916=1.9
$60
30%