Anchor, Inc. had income after taxes of $500,000 for the current year. An average of 125,000 shares of Anchor's common stock was outstanding for the entire year, and 130,000 shares were outstanding at year-end. In addition, options were outstanding throughout the year to buy 12,000 shares of Anchor common stock at $7.50 per share. During the year, Anchor's common

 

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Anchor, Inc. had income after taxes of $500,000 for the current year. An average of 125,000 shares of Anchor's common stock was outstanding for the entire year, and 130,000 shares were outstanding at year-end. In addition, options were outstanding throughout the year to buy 12,000 shares of Anchor common stock at $7.50 per share. During the year, Anchor's common stock had an average market price of $9 per share. The stock was selling for $10 per share at year-end. Anchor is subject to a 34 percent tax rate and amortizes its bonds using a straight-line method. Anchor had the following convertible securities outstanding throughout the current year: 1. 6%, cumulative, convertible preferred stock. Each $10 par value share is convertible into 1.5 common shares. A total of $100,000 par value is outstanding. 2. 8 percent, 10-year, $1,000 par convertible bonds that were issued at 105. Total par value outstanding is $100,000. Each bond converts into 90 shares of common stock. 3. 13 percent, 5-year, $1,000 par convertible bonds that were issued at 97. Total par value outstanding is $30,000. Each bond converts into 30 shares of common stock. 4. 7 percent, 8-year, $1,000 par convertible bonds that were issued at 95. Total par value outstanding is $60,000. Each bond converts into 20 shares of common stock. 5. An 11%, 20-year, $1,000 par convertible bonds that were issued at face value. The total par value outstanding is $500,000. Each bond converts into 20 shares of common stock. Required: Calculate Anchor Inc.'s basic and diluted EPS for the current year. Note: Use straight-line amortization for all the bonds. For example, if you have a 15 year, 10%, $1,000 face value bond issued at 85 and a $150 discount at issue, then $10 will be amortized each period using straight line amortization. You would have the following: At issue: Cash 850 Discount on B/P 150 Bonds Payable 1,000 Periodic entries: Interest Expense 110 Discount on B/P 10 Cash 100

Expert Answer

Answer: 1) Calculation of Basic EPS Basic EPS = (Net Income - Preferred Dividend) / weighted average number of shares outstanding = ($5,00,000 - 6% x … View the full answer