he following information for Smith Inc., for the year 2019, is as follows: Earnings from continuing operations ………………….…………$202,000 Discontinued operations gain ……………………………………. 18,000 Weighted average number of common shares outstanding….. 80,000 Average market price of common shares for 2019……………..$18/share Income tax rate……………………………………………………..40% •6% convertible bonds: $40,000 convertible bonds were sold at par on January 1, 2011, maturing January 1, 2026. Each $1,000 bond is convertible into 10 common shares at the option of the holder. •Preferred shares, $.24 annual dividend, nonconvertible; cumulative; outstanding 5,000 shares. Dividends were not declared in 2019. •Preferred shares, $.15 annual dividend, cumulative; convertible; outstanding 1,500 shares. Each share of preferred is convertible into two common shares at the option of the holder any time after issuance. Dividends in the amount of $225 were declared in 2019. •Stock options A: Options (issued in 2015) to purchase 4,000 shares for $20 per share, expiring December 31, 2023. The options may be exercised at any time prior to expiry. •Stock options B: Options (issued in 2017) to purchase 2,000 shares for $12 per share, expiring December 31, 2025. The options may be exercised at any time prior to expiry. REQUIRED: In the chart below, calculate the earnings effect, the number of shares issued and the individual effect of each item. If an item has no effect, state “no effect”. Item Earnings effect Shares Issued Individual Effect 6% convertible bonds Cumulative, nonconvertible, Preferred Shares Cumulative Preferred Shares Stock options A Stock options B
he following information for Smith Inc., for the year 2019, is as follows:
Earnings from continuing operations ………………….…………$202,000
Discontinued operations gain ……………………………………. 18,000
Weighted average number of common shares outstanding…..
80,000 Average market price of common shares for 2019……………..$18/share
Income tax rate……………………………………………………..40%
•6% convertible bonds: $40,000 convertible bonds were sold at par on January 1, 2011, maturing January 1, 2026. Each $1,000 bond is convertible into 10 common shares at the option of the holder.
•
•Preferred shares, $.15 annual dividend, cumulative; convertible; outstanding 1,500 shares. Each share of preferred is convertible into two common shares at the option of the holder any time after issuance. Dividends in the amount of $225 were declared in 2019.
•Stock options A: Options (issued in 2015) to purchase 4,000 shares for $20 per share, expiring December 31, 2023. The options may be exercised at any time prior to expiry. •Stock options B: Options (issued in 2017) to purchase 2,000 shares for $12 per share, expiring December 31, 2025. The options may be exercised at any time prior to expiry. REQUIRED: In the chart below, calculate the earnings effect, the number of shares issued and the individual effect of each item. If an item has no effect, state “no effect”.
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Item |
Earnings effect |
Shares Issued |
Individual Effect |
| 6% convertible bonds | |||
| Cumulative, nonconvertible, Preferred Shares | |||
| Cumulative Preferred Shares |
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Stock options A
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Stock options B |
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