The Controller of Junee Motorcycles has given you the responsibility of calculating the earnings per share figures
Question:
The Controller of Junee Motorcycles has given you the responsibility of calculating the earnings per share figures for the year ended 12/31/X7. The following information is provided.
Common stock transactions
As of 1/1/X7, the company had 6,000,000 authorized shares of $1 stated value common stock, and 670,000 shares issued and outstanding.
- 10/1/X7, issued in a 2 for 1 stock split. After the stock split, the stated value was reduced to $0.50 per share and there were 12,000,000 authorized shares.
- 12/1/X7 issued 180,000 shares at $52 per share (post-split price)
Treasury stock transactions (accounted for using the par value method)
- 3/31/X7 purchased 20,000 shares at $105 per share
- 7/1/X7 sold 8,000 shares at $102 per share.
Stock Options
On 2/1/X7, 300,000 stock options were granted to officers and key employees to purchase one share of common stock per option at $90 per share. The options had a fair value of $4.50 each on the grant date, and the options are exercisable on or after 2/1/X9. Effective 10/1/X7, each option became exchangeable for two common shares at $45 per share.
Convertible Bonds
$4,000,000 of unsecured, convertible, 25-year, 5% bonds issued on 7/1/X7. The initial conversion rate was 30 shares of common stock for each $1,000 bond. Effective 10/1/X7, the conversion rate became 60 shares per $1,000 bond. As of 12/31/X7, all bonds were still outstanding and unconverted, and all semi-annual interest payments had been paid. No bonds were converted during 20X7.
Net Income
During 20X7, the company reported $3,100,000 of net income.
Tax Rate
The company's applicable tax rate is 32%
Common stock prices
Beginning, quarterly, ending, and average prices for the company's common stock are provided below.
Date | 1/1/X7 | 4/1/X7 | 7/1/X7 | 10/1/X7 | 12/31/X7 | Average* |
Common Stock Price | 97.00 | 98.00 | 101.00 | 52.00 | 55.00 | 50.00 |
*Annual average adjusted for the stock split on 10/1/X7.
Required:
- Using the information below, compute basic and diluted earnings per share (EPS) for Valiant Motorcycles as of December 31, 20X7.
- Prepare clear and detailed schedules and explanations to support all parts/steps of your calculations.
- Provide specific references to the ASC and other resources to document the correct treatment of each item in your computations.
- Present your solution using the accounting research memo format.
Intermediate Accounting
ISBN: 978-0324592375
17th Edition
Authors: James D. Stice, Earl K. Stice, Fred Skousen