Impact on EPS, Rankings, and Computations Waseca Company had 5 convertible securities outstanding during all of 2019. It paid the appropriate interest (and amortized any related premium or discount using the straight-line method) and dividends on each security during 2019. Each of the convertible securities is described in the following table: Security Description 10.2% bonds $200,000 face value. Issued at par. Each $1,000 bond is convertible into 28 shares of common stock. 12.0% bonds $160,000 face value. Issued at 110. Premium being amortized over 20-year life. Each $1,000 bond is convertible into 47 shares of common stock. 9.0% bonds $200,000 face value. Issued at 95. Discount being amortized over 10-year life. Each $1,000 bond is convertible into 44 shares of common stock. 8.3% preferred stock $120,000 par value. Issued at 108. Each $100 par preferred stock is convertible into 3.9 shares of common stock. 7.5% preferred stock $180,000 par value. Issued at par. Each $100 par preferred stock is convertible into 6 shares of common stock. Additional data: Net income for 2019 totaled $119,460. The weighted average number of common shares outstanding during 2019 was 40,000 shares. No share options or warrants are outstanding. The effective corporate income tax rate is 30%. Required: 1. Prepare a schedule that lists the impact of the assumed conversion of each convertible security on diluted earnings per share. Round to two decimal places. Waseca Company Schedule of Impact on EPS Impact 10.2% bonds $fill in the blank 1557c1001021073_1 12.0% bonds $fill in the blank 1557c1001021073_2 9.0% bonds $fill in the blank 1557c1001021073_3 8.3% preferred stock $fill in the blank 1557c1001021073_4 7.5% preferred stock $fill in the blank 1557c1001021073_5 Feedback To determine the sequence in which to include convertible securities in diluted earnings per share, the securities are ranked by their potential impact on diluted earnings per share resulting from the assumed conversion of each convertible security into common shares. The ranking enables the corporation to sequentially include dilutive convertible securities in its diluted earnings per share in the descending order of their individual dilutive effect on earnings per share. To compute this impact, you should use the if-converted method. You should note that interest expense on bonds is affected by the amortization of a discount or a premium. 2. Prepare a ranking from 1-5 of the order in which each of the convertible securities should be included in diluted earnings per share. The convertible security having the most dilutive impact on diluted earnings per share is listed at the top of the ranking (i.e. "1"). Waseca Company Schedule of Ranking Ranking 10.2% bonds fill in the blank 22a0fcff0016f8d_1 12.0% bonds fill in the blank 22a0fcff0016f8d_2 9.0% bonds fill in the blank 22a0fcff0016f8d_3 8.3% preferred stock fill in the blank 22a0fcff0016f8d_4 7.5% preferred stock fill in the blank 22a0fcff0016f8d_5 Feedback After the corporation has computed the impact on DEPS for each convertible security, it ranks the securities. The convertible security having the most dilutive impact on diluted earnings per share is listed at the top of the ranking. It is important to understand that the convertible security which causes the greatest decrease in diluted earnings per share, is the most dilutive convertible security and is the first (after options and warrants) to be included in diluted earnings per share. 3. Compute basic earnings per share. Round to two decimal places. $ fill in the blank 6dc10e06e014054_1 per share Feedback Because a corporation generates net income over the entire year, the earnings relate to the common shares outstanding during the year. If a corporation has not issued or reacquired any shares and the number of shares outstanding has remained constant during the year, it uses the number of common shares outstanding at the end of the accounting period. If a corporation has issued or reacquired common shares during the period, the weighted average number of common shares outstanding during the period must be computed. 4. Compute diluted earnings per share. Round to two decimal places. $ fill in the blank 7bd951fe7fd8065_1 per share Feedback Diluted earnings per share (DEPS) shows the earnings per share after including all potential common shares that would decrease earnings per share. It considers these potential common shares in addition to the weighted average common shares calculation. 5. Indicate the amount(s) of the earnings per share that Waseca would report on its 2019 income statement. Round to two decimal places. Basic earnings per share: $ fill in the blank 273a3b000fda02c_1 Diluted earnings per share: $ fill in the blank 273a3b000fda02c_2 A corporation with a complex capital structure is required to report both basic and diluted earnings per share amounts on the face of its income statement.

Impact on EPS, Rankings, and Computations Waseca Company had 5 convertible securities outstanding during all of 2019. It paid the appropriate interest (and amortized any related premium or discount using the straight-line method) and dividends on each security during 2019. Each of the convertible securities is described in the following table: Security Description 10.2% bonds $200,000 face value. Issued at par. Each $1,000 bond is convertible into 28 shares of common stock. 12.0% bonds $160,000 face value. Issued at 110. Premium being amortized over 20-year life. Each $1,000 bond is convertible into 47 shares of common stock. 9.0% bonds $200,000 face value. Issued at 95. Discount being amortized over 10-year life. Each $1,000 bond is convertible into 44 shares of common stock. 8.3% preferred stock $120,000 par value. Issued at 108. Each $100 par preferred stock is convertible into 3.9 shares of common stock. 7.5% preferred stock $180,000 par value. Issued at par. Each $100 par preferred stock is convertible into 6 shares of common stock. Additional data: Net income for 2019 totaled $119,460. The weighted average number of common shares outstanding during 2019 was 40,000 shares. No share options or warrants are outstanding. The effective corporate income tax rate is 30%. Required: 1. Prepare a schedule that lists the impact of the assumed conversion of each convertible security on diluted earnings per share. Round to two decimal places. Waseca Company Schedule of Impact on EPS Impact 10.2% bonds $fill in the blank 1557c1001021073_1 12.0% bonds $fill in the blank 1557c1001021073_2 9.0% bonds $fill in the blank 1557c1001021073_3 8.3% preferred stock $fill in the blank 1557c1001021073_4 7.5% preferred stock $fill in the blank 1557c1001021073_5 Feedback To determine the sequence in which to include convertible securities in diluted earnings per share, the securities are ranked by their potential impact on diluted earnings per share resulting from the assumed conversion of each convertible security into common shares. The ranking enables the corporation to sequentially include dilutive convertible securities in its diluted earnings per share in the descending order of their individual dilutive effect on earnings per share. To compute this impact, you should use the if-converted method. You should note that interest expense on bonds is affected by the amortization of a discount or a premium. 2. Prepare a ranking from 1-5 of the order in which each of the convertible securities should be included in diluted earnings per share. The convertible security having the most dilutive impact on diluted earnings per share is listed at the top of the ranking (i.e. "1"). Waseca Company Schedule of Ranking Ranking 10.2% bonds fill in the blank 22a0fcff0016f8d_1 12.0% bonds fill in the blank 22a0fcff0016f8d_2 9.0% bonds fill in the blank 22a0fcff0016f8d_3 8.3% preferred stock fill in the blank 22a0fcff0016f8d_4 7.5% preferred stock fill in the blank 22a0fcff0016f8d_5 Feedback After the corporation has computed the impact on DEPS for each convertible security, it ranks the securities. The convertible security having the most dilutive impact on diluted earnings per share is listed at the top of the ranking. It is important to understand that the convertible security which causes the greatest decrease in diluted earnings per share, is the most dilutive convertible security and is the first (after options and warrants) to be included in diluted earnings per share. 3. Compute basic earnings per share. Round to two decimal places. $ fill in the blank 6dc10e06e014054_1 per share Feedback Because a corporation generates net income over the entire year, the earnings relate to the common shares outstanding during the year. If a corporation has not issued or reacquired any shares and the number of shares outstanding has remained constant during the year, it uses the number of common shares outstanding at the end of the accounting period. If a corporation has issued or reacquired common shares during the period, the weighted average number of common shares outstanding during the period must be computed. 4. Compute diluted earnings per share. Round to two decimal places. $ fill in the blank 7bd951fe7fd8065_1 per share Feedback Diluted earnings per share (DEPS) shows the earnings per share after including all potential common shares that would decrease earnings per share. It considers these potential common shares in addition to the weighted average common shares calculation. 5. Indicate the amount(s) of the earnings per share that Waseca would report on its 2019 income statement. Round to two decimal places. Basic earnings per share: $ fill in the blank 273a3b000fda02c_1 Diluted earnings per share: $ fill in the blank 273a3b000fda02c_2 A corporation with a complex capital structure is required to report both basic and diluted earnings per share amounts on the face of its income statement.

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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Impact on EPS, Rankings, and Computations

Waseca Company had 5 convertible securities outstanding during all of 2019. It paid the appropriate interest (and amortized any related premium or discount using the straight-line method) and dividends on each security during 2019. Each of the convertible securities is described in the following table:

Security	Description
10.2% bonds	$200,000 face value. Issued at par. Each $1,000 bond is convertible into 28 shares of common stock.
12.0% bonds	$160,000 face value. Issued at 110. Premium being amortized over 20-year life. Each $1,000 bond is convertible into 47 shares of common stock.
9.0% bonds	$200,000 face value. Issued at 95. Discount being amortized over 10-year life. Each $1,000 bond is convertible into 44 shares of common stock.
8.3% preferred stock	$120,000 par value. Issued at 108. Each $100 par preferred stock is convertible into 3.9 shares of common stock.
7.5% preferred stock	$180,000 par value. Issued at par. Each $100 par preferred stock is convertible into 6 shares of common stock.

Additional data:

Net income for 2019 totaled $119,460. The weighted average number of common shares outstanding during 2019 was 40,000 shares. No share options or warrants are outstanding. The effective corporate income tax rate is 30%.

Required:

1. Prepare a schedule that lists the impact of the assumed conversion of each convertible security on diluted earnings per share. Round to two decimal places.

Waseca Company
Schedule of Impact on EPS

	Impact
10.2% bonds	$fill in the blank 1557c1001021073_1
12.0% bonds	$fill in the blank 1557c1001021073_2
9.0% bonds	$fill in the blank 1557c1001021073_3
8.3% preferred stock	$fill in the blank 1557c1001021073_4
7.5% preferred stock	$fill in the blank 1557c1001021073_5

Feedback

To determine the sequence in which to include convertible securities in diluted earnings per share, the securities are ranked by their potential impact on diluted earnings per share resulting from the assumed conversion of each convertible security into common shares. The ranking enables the corporation to sequentially include dilutive convertible securities in its diluted earnings per share in the descending order of their individual dilutive effect on earnings per share. To compute this impact, you should use the if-converted method.

You should note that interest expense on bonds is affected by the amortization of a discount or a premium.

2. Prepare a ranking from 1-5 of the order in which each of the convertible securities should be included in diluted earnings per share. The convertible security having the most dilutive impact on diluted earnings per share is listed at the top of the ranking (i.e. "1").

Waseca Company
Schedule of Ranking

	Ranking
10.2% bonds	fill in the blank 22a0fcff0016f8d_1
12.0% bonds	fill in the blank 22a0fcff0016f8d_2
9.0% bonds	fill in the blank 22a0fcff0016f8d_3
8.3% preferred stock	fill in the blank 22a0fcff0016f8d_4
7.5% preferred stock	fill in the blank 22a0fcff0016f8d_5

Feedback

After the corporation has computed the impact on DEPS for each convertible security, it ranks the securities. The convertible security having the most dilutive impact on diluted earnings per share is listed at the top of the ranking.

It is important to understand that the convertible security which causes the greatest decrease in diluted earnings per share, is the most dilutive convertible security and is the first (after options and warrants) to be included in diluted earnings per share.

3. Compute basic earnings per share. Round to two decimal places.
$ fill in the blank 6dc10e06e014054_1 per share

Feedback

Because a corporation generates net income over the entire year, the earnings relate to the common shares outstanding during the year. If a corporation has not issued or reacquired any shares and the number of shares outstanding has remained constant during the year, it uses the number of common shares outstanding at the end of the accounting period. If a corporation has issued or reacquired common shares during the period, the weighted average number of common shares outstanding during the period must be computed.

4. Compute diluted earnings per share. Round to two decimal places.
$ fill in the blank 7bd951fe7fd8065_1 per share

Feedback

Diluted earnings per share (DEPS) shows the earnings per share after including all potential common shares that would decrease earnings per share. It considers these potential common shares in addition to the weighted average common shares calculation.

5. Indicate the amount(s) of the earnings per share that Waseca would report on its 2019 income statement. Round to two decimal places.

Basic earnings per share: $ fill in the blank 273a3b000fda02c_1
Diluted earnings per share: $ fill in the blank 273a3b000fda02c_2

A corporation with a complex capital structure is required to report both basic and diluted earnings per share amounts on the face of its income statement.

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