The following information is available for Dylan Inc., a company whose shares are traded on the Toronto Stock Exchange:
Net income ................................................................................................... $150,000
Average market price of common shares during 2014 (adjusted for stock dividend) .................... $20
December 31, 2014 (fiscal year end) market price of common shares ...................................... $20
Income tax rate for fiscal year 2014 ............................................................................ 30%
Transactions in common shares during 2014: Change Cumulative shares
Jan. 1, 2014, common shares outstanding ................................................. 90,000
Mar. 1, 2014, issuance of common shares ............. 30,000 ......................... 120,000
June 1, 2014, 10% stock dividend ...................... 12,000 ......................... 132,000
Nov. 1, 2014, repurchase of common shares ......... (30,000) ........................ 102,000
Other information:
1. For all of the fiscal year 2014, $100,000 of 6% cumulative convertible bonds have been outstanding. The bonds were issued at par and are convertible into a total of 10,000 common shares (adjusted for the stock dividend) at the option of the holder, and at any time after issuance.
2. Stock options for 20,000 common shares have been outstanding for the entire 2014 fiscal year, and are exercisable at the option price of $25 per share (adjusted for the stock dividend).
3. For all of the fiscal year 2014, $100,000 of 4% cumulative convertible preferred shares have been outstanding. The preferred shares are convertible into a total of 15,000 common shares (adjusted for the stock dividend) at the option of the holder, and at any time after January 2019.
Instructions
(a) Determine the weighted average number of common shares that would be used in calculating earnings per share for the year ending December 31, 2014.
(b) Calculate basic earnings per share for 2014.
(c) Determine the potential for dilution for each security that is convertible into common shares.
(d) Calculate diluted earnings per share for 2014. For simplicity, ignore the requirement to record the debt and equity components of the bonds separately.