40516-5AND16-8

40516-5AND16-8 - $240,000 3 Shares assumed to be issued if...

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PROBLEM 16-5 The computation of Fitzgerald Pharmaceutical Industries’ basic earnings per share and the diluted earnings per share for the fiscal year ended June 30, 2012, are shown below. (a) Basic earnings per share = Net income – Preferred dividends Average common shares outstanding = $1,500,000 – $75,000 1 1,000,000 = $1,425,000 1,000,000 = $1.425 or $1.43 per share 1 Preferred dividend = .06 X $1,250,000 = $75,000 (b) Diluted earnings per share = Net income – Preferred dividends + Interest (net of tax) Average common shares + Potentially dilutive common shares = $1,500,000 – $75,000 + $240,000 2 1,000,000 + 250,000 3 + 50,000 4 = $1,665,000 1,300,000 = $1.2808 or $1.28 per share 2 Use “if converted” method for 8% bonds Adjustment for interest expense (net of tax) ($5,000,000 X .08 X .6). ..............................................
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Unformatted text preview: $240,000 3 Shares assumed to be issued if converted $5,000,000 ÷ $1,000/bond X 50 shares. ........................ 250,000 PROBLEM 16-5 (Continued) 4 Use treasury stock method to determine incremental shares outstanding Proceeds from exercise of options (200,000 X $15). ........................................................... $3,000,000 Shares issued upon exercise of options. .................... 200,000 Shares purchasable with proceeds (Proceeds ÷ Average market price) ($3,000,000 ÷ $20). ...................................................... (150,000 ) Incremental shares outstanding. .......................... 50,000 PROBLEM 16-8 (a) Basic EPS = $1,200,000 – ($4,000,000 X .06) 600,000* = $1.60 per share *$6,000,000 ÷ $10...
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40516-5AND16-8 - $240,000 3 Shares assumed to be issued if...

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