Computing Basic and Diluted EPS, Convertible Bonds, Disclosures. Note the following partial income statement for Cassie Corporation for the current year.
Partial Income Statement For the Current Year
Income from continuing operations………………………… $ 3,650,000
Income from discontinued operations, net of tax…………... 325,200
Net income………………………………………………….. $ 3,975,200
The company is subject to a 40% tax rate. We present share information for the current year in the following table.
Event and Date Number of Shares
1/1 Beginning balance………………………………..1,890,000
3/1 New share issue………………………………….. 240,000
11/1 Treasury stock acquisition……………………… (90,000)
Cassie had 360,000 options outstanding all year at an exercise price of $ 25 per share. The average market price of the company’s shares for the current year is $ 40 per share. The company issued 7%, $ 6,500,000 convertible debt on April 1 of the current year at par value. Each $ 1,000 par value bond converts into 25 shares of the company’s common stock. All debt converted into common stock on October 1. Assume the bonds are antidilutive. Each option is exercisable for one share of common stock.
Required
a. Compute basic and diluted earnings per share for income from continuing operations and net income. Show all computations.
b. Prepare all required disclosures beginning with income from continuing operations.