Below we present a partial income statement for City Line Enterprises for the current year.
Partial Income Statement For the Current Year
Loss from continuing operations…………………………….. $ (621,000)
Income from discontinued operations, net of tax…………… 3,256,000
Net income……………………………..…………………… $ 2,635,000
The company is subject to a 40% tax rate. Share information for the current year follows.
Event and Date Number of Shares
1/1 Beginning balance……………………. 2,000,000
5/1 New share issue………………………. 360,000
8/1 New share issue……………………….. 120,000
12/1 Two-for-one split…………………….. 2,480,000
City Line provided the following information about its capital structure. The company had 500,000 out-standing employee options to acquire 500,000 shares at an exercise price of $ 7 per share. The average market price of the company’s shares for the current year is $ 10 per share. The company issued 3%, $ 1,500,000 convertible debt two years ago at par value. Each $ 1,000 par value bond converts into five shares of the company’s common stock. City Line has $ 800,000 par value, 6% cumulative preferred shares outstanding for the entire year. The preferred shares are nonconvertible. There were no actual exercises or conversions during the year.
Required
a. Compute the weighted- average number of common shares outstanding for basic earnings per share.
b. Determine whether any securities are antidilutive and compute basic and diluted earnings per share. Show all computations.
c. Prepare all required disclosures beginning with income from continuing operations.