Diane Leto, controller at Dewey Yaeger Pharmaceutical Industries, a public company, is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for Yaeger’s external financial statements. Below is selected financial information for the fiscal year ended June 30, 2008.
Dewey Yaeger Pharmaceutical Industries
Selected Statement of
Financial Position Information
June 30, 2008
Long-term debt
Notes payable, 10% ............$ 1,000,000
7% convertible bonds payable ........5,000,000
10% bonds payable .............6,000,000
Total long-term debt .............$12,000,000
Shareholders’ equity
Preferred stock, 8.5% cumulative, $50 par value,
100,000 shares authorized, 25,000 shares issued
and outstanding .............$ 1,250,000
Common stock, $1 par, 10,000,000 shares authorized,
1,000,000 shares issued and outstanding ....1,000,000
Additional paid-in capital ..........4,000,000
Retained earnings .............6,000,000
Total shareholders’ equity ...........$12,250,000
The following transactions have also occurred at Yaeger.
1. Options were granted in 2006 to purchase 100,000 shares at $15 per share. Although no options were exercised during 2008, the average price per common share during fiscal year 2008 was $20 per share.
2. Each bond was issued at face value. The 7% convertible debenture will convert into common stock at 50 shares per $1,000 bond. It is exercisable after 5 years and was issued in 2007.
3. The 8.5% preferred stock was issued in 2006.
4. There are no preferred dividends in arrears; however, preferred dividends were not declared in fiscal year 2008.
5. The 1,000,000 shares of common stock were outstanding for the entire 2008 fiscal year.
6. Net income for fiscal year 2008 was $1,500,000, and the average income tax rate is 40%.
Instructions
For the fiscal year ended June 30, 2008, calculate the following for Dewey Yaeger Pharmaceutical Industries.
(a) Basic earnings per share.
(b) Diluted earnings per share.