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Compute Basic EPS Evaluate the Conversion Effect for Convertible Security A. Is it Dilutive?

Compute Basic EPS Evaluate the Conversion Effect for Convertible Security A. Is it Dilutive?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Ex 1. Smokey's Swag Inc. had after tax net income of $100,000 in 2023 and face a 20% income tax rate. The average stock market price of Smokey's Swag Inc. during 2023 was $40. Smokey's Swag has 100,000 shares of $1 par common stock outstanding at the beginning of 2023. It purchased 10,000 shares of treasury stock on July 1, 2023 for $50 per share and then reissued 6,000 of these shares on October 31, 2023 for $45 per share. Further, total dividends paid during 2023 were $10,000. In addition, Smokey's Swag has the following potentially dilutive securities outstanding in 2023: (A) 10 convertible bonds issued at par with a $1,000 face value and 7.5% coupon rate. Each bond can be converted into 200 shares of common stock. (B) 1,000 shares of 4% preferred stock with a $100 par value. Each share can converted into 5 shares of common stock. (C) 3,000 stock options with a strike price of $22. Compute Basic EPS Evaluate the Conversion Effect for Convertible Security A. Is it Dilutive?
Transcribed Image Text:Ex 1. Smokey's Swag Inc. had after tax net income of $100,000 in 2023 and face a 20% income tax rate. The average stock market price of Smokey's Swag Inc. during 2023 was $40. Smokey's Swag has 100,000 shares of $1 par common stock outstanding at the beginning of 2023. It purchased 10,000 shares of treasury stock on July 1, 2023 for $50 per share and then reissued 6,000 of these shares on October 31, 2023 for $45 per share. Further, total dividends paid during 2023 were $10,000. In addition, Smokey's Swag has the following potentially dilutive securities outstanding in 2023: (A) 10 convertible bonds issued at par with a $1,000 face value and 7.5% coupon rate. Each bond can be converted into 200 shares of common stock. (B) 1,000 shares of 4% preferred stock with a $100 par value. Each share can converted into 5 shares of common stock. (C) 3,000 stock options with a strike price of $22. Compute Basic EPS Evaluate the Conversion Effect for Convertible Security A. Is it Dilutive?
Evaluate the Conversion Effect for Convertible Security B. Is it Dilutive? Evaluate the Conversion Effect for Convertible Security C. Is it Dilutive? Calculate Dilutive EPS Modify the conversion feature of a security A to make it anti-dilutive
Transcribed Image Text:Evaluate the Conversion Effect for Convertible Security B. Is it Dilutive? Evaluate the Conversion Effect for Convertible Security C. Is it Dilutive? Calculate Dilutive EPS Modify the conversion feature of a security A to make it anti-dilutive
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