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Homework answers / question archive / At December 31, 2019, Jack Russell Ltd

At December 31, 2019, Jack Russell Ltd

Accounting

At December 31, 2019, Jack Russell Ltd. had 900,000 common shares outstanding (no preferred shares issued). On September 1, 2020, an additional 300,000 common shares were issued. In addition, Jack Russell had $10,000,000 (par value) 6% convertible bonds outstanding at December 31, 2019, which are convertible into 600,000 common shares. No bonds were converted in 2020. Net income for calendar 2020 was $3,750,000. Assuming the income tax rate is 30%, the diluted earnings per share for 2020 is

$3.75.

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Computation of Diluted Earning per Share:

Diluted Earning per Share = Net Income / No. of Shares Outstanding

Here,

Net Income = $3,750,000+$10,000,000*6%*(1-30%) = $3,750,000+$420,000 = $4,170,000

Number of shares outstanding if preferred shares converted = 900,000 + 300,000*4/12 + 600,000 = 1,600,000 shares

Therefore,

Diluted Earning per Share = $4,170,000/1,600,000 shares = $2.61

So, the correct option is 3rd "$2.61".

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