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F. Naz
F. Naz, Chartered Accountant
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Experience:  Experience with chartered accountancy
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The Frost Company has accumulated the following information

Resolved Question:

The Frost Company has accumulated the following information relevant to its 2010 earnings per share.

1. Net income for 2010 is $150,500.
2. Common Stock:
a. Outstanding on Jan, 1 2010- 25,000 shares
b. Issue for Cash:
i. August 4- 7,000 Shares
c. Issued as a stock dividend:
i. September 8- 6,400 shares (20% stock dividend)
d. Teasury Stock
i. November 30- 2,000 shares were reacquired as treasury stock

3. Bonds Payable
a. On January 1, 2010 the company had issue 10%, $200,000 bonds at 110. The premium is being amortized in the amount of $1,000 per year. Each $1,000 bond is currently convertible into 22 shares of common stock. To date, no bonds have been converted.
b. Bonds payable: On December 31, 2008, the company had issued $540,000 of 5.8% bonds at par. Each $1,000 bond is currently convertible into 11.6 shares of common stock. To date, no bonds ahve been converted.

4. Preferred stock: On July 1, 2009 the company had issued 3,800 shares of 7.5% $100 par, preferred stock at $108 per share. Each share of preferred stock is currently convertible into 2.45 shares of common stock. To date, no preferred stock has been converted and no additional shares of preferred stock have been issued. The current dividends have been paid.

5. Compensatory stock options: Options to acquire common stock at a price of $33 per share were outstanding during all of 2010. Currently 4,000 shares may be acquired. To date, no options have been exercised.

6. Miscellaneous:

a. Stock markets prices:
i. 2010 average- $41 per share
ii. 2010 ending - $40 per sahre
b. Corporate income tax rate is 30%.

CALCULATE 2010 BASIC EARNINGS PER SHARE

CALCULATE 2010 DILUTED EARNINGS PER SHARE
Submitted: 2 years ago.
Category: Homework
Expert:  F. Naz replied 2 years ago.


Have a nice day,

Click here for solution


Customer: replied 2 years ago.

on the part of weighted average shares outstanding,,,

 

where do the #'s 215;35;83 etc. come from?

 

Thanks

Expert:  F. Naz replied 2 years ago.

These are number of days, I am again attaching the revised solution as I had missed the adjustment for interest, sorry for inconvenience, thanks.

Click here for revised solution

Customer: replied 2 years ago.

Ok i understand that....

 

For Basic Earnings per Share

 

How did you come up with 150,000-28500/29718?

 

I know how you got 29718, but I do not know how you got the 150,000 and the 28500

Expert:  F. Naz replied 2 years ago.
Preferred stock dividend = 7.5% of 100 which is equal to $7.5 , multiply it by 3800 = 3800*7.5 = 28500
Customer: replied 2 years ago.
Ok I understand that, but how did you get the 150,000? Is it supposed to be the net income of $150,500, instead of 150,000 or is that number coming from somewhere else?
Expert:  F. Naz replied 2 years ago.
Yes it should be $150500

Click here for adjusted solution

Customer: replied 2 years ago.

I guess my next question is indeed how did you get 29718? I understand the logic behind how you did it..... this is how i attempted the WASO

 

25,000x7/12x1.2= 17500

32,000x1/12x1.2=3200

38400x3/12x1.2=9600

36400x1/12x1.2=3640

 

obviously that doesnt add up to yours.... the 1.2= 20% stock dividend

 

what am i doing wrong? Only reason i ask this way, is because our teacher does it this way, so im curious

Expert:  F. Naz replied 2 years ago.
Why you are mutliplying by 1.2, the stock dividend affect is on sept 8 and it is only for one item, so how can you apply to each item, specially before sept 8, thanks.
Customer: replied 2 years ago.

ok thank you.....

 

I have one question left,

 

where did you get 185724/53692 in adjusted net income/net shares??

 

Thanks

Expert:  F. Naz replied 2 years ago.
all the caclulations have been shown, the addition has been made for bond if converted to shares for net shares and for adjusted income the interest after tax saving has been added to net income of 150500.
Customer: replied 2 years ago.
I sincerely XXXXX XXXXX I still dont understand how to go about getting the right numbers to convert to 185724... I apologize again. please help
Expert:  F. Naz replied 2 years ago.
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F. Naz, Chartered Accountant
Category: Homework
Satisfied Customers: 4087
Experience: Experience with chartered accountancy
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