On June 1, 2010, Mohawk Corp. and Shortreed Limited merged to form Livingston Inc. A total of 800,000 shares were issued to complete the merger. The new corporation uses the calendar year as its fiscal year.
On April 1, 2012, the company issued an additional 400,000 shares for cash. All 1.2 million shares were outstanding on December 31, 2012. Livingston Inc. also issued $600,000 of 20-year, 8% convertible bonds at par on July 1, 2012. Each $1,000 bond converts to 40 common shares at any interest date. None of the bonds have been converted to date. If the bonds had been issued without the conversion feature, the annual interest rate would have been 10%.
Livingston Inc. is preparing its annual report for the fiscal year ending December 31, 2012. The annual report will show earnings per share figures based on a reported after-tax net income of $1,540,000 (the tax rate is 40%).
Instructions
(a) Determine for 2012 the number of shares to be used in calculating:
1. basic earnings per share.
2. diluted earnings per share.
(b) Determine for 2012 the earnings figures to be used in calculating:
1. basic earnings per share.
2. diluted earnings per share.