(EPS: Simple Capital
Structure) On January 1, 2010, Bailey Industries had stock outstanding as
follows.
6%
Cumulative preferred stock, $100 par value,
issued
and outstanding 10,000 shares_____________ $1,000,000
Common
stock, $10 par value, issued and
outstanding
200,000 shares ____________________ 2,000,000
To acquire the net
assets of three smaller companies, Bailey authorized the issuance of an
additional 170,000 common shares. The acquisitions took place as shown below.
Date of Acquisition Shares Issued
Company A April 1,
2010 ___________ 60,000
Company B July 1,
2010 ____________ 80,000
Company C October 1,
2010 _________ 30,000
On May 14, 2010,
Bailey realized a $90,000 (before taxes) insurance gain on the expropriation of
investments originally purchased in 2000.
On December 31, 2010,
Bailey recorded net income of $300,000 before tax and exclusive of the gain.
Instructions:
Answer:
Income before income tax and extraordinary
items............................. $300,000
Income
taxes.........................................................................................
120,000
Income before extraordinary item........................................................ 180,000
Extraordinary gain, net of applicable income tax of
$36,000.............. 54,000
Net
income........................................................................................... $234,000
Per
share of common stock:
Income before extraordinary item*.......................................... $.41
Extraordinary gain, net of tax**..............................................
.18
Net
income***.........................................................................
$.59
Dates Share Fraction Weighted
Outstanding
Outstanding of Year Shares .
January
1- April 1 200,000 3/12 50,000
April 1
– July 1 260,000 3/12 65,000
July 1-
Oct 1 340,000 3/12 85,000
Oct 1 –
Dec 31 370,000 3/12 92,500
Weighted-average
number of share outstanding 292,500
$300,000 – income tax of $120,000 – preferred
dividends of $60,000
(6% of $1,000,000) = $120,000 (income available to
common stockholders)
*$120,000
÷ 292,500 shares = $.41 per share (income before extraordinary gain)
**$54,000 ÷
292,500 shares = $.18 per share (extraordinary gain, net of tax)
***$174,000 ÷ 292,500 shares = $.59 per share (net
income)
