On December 31, 2020, Dow Steel Corporation had 610,000 shares of common stock and 301,000 shares of 9%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 4% common stock dividend on May 15 and paid cash divide of $410,000 and $70,000 to common and preferred shareholders, respectively, on December 15, 2021. On February 28, 2021, Dow sold 63,000 common shares. In keeping with its long-term share repurchase plan, 2,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2021, was $2,150,000. The income tax rate is 25%. Also, as a of a 2020 agreement for the acquisition of Merrill Cable Company, another 24,000 shares (already adjusted for the stock dividen to be issued to former Merrill shareholders on December 31, 2022, if Merrill's 2022 net income is at least $510,000. In 2021, Merr net income was $640,000. As part of an incentive compensation plan, Dow granted incentive stock options to division managers at December 31 of the curr and each of the previous two years. Each option permits its holder to buy one share of common stock at an exercise price equal market value at the date of grant and can be exercised one year from that date. Information concerning the number of options gr and common share prices follows: Options Granted (adjusted for the stock dividend) Date Granted Share Price
On December 31, 2020, Dow Steel Corporation had 610,000 shares of common stock and 301,000 shares of 9%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 4% common stock dividend on May 15 and paid cash divide of $410,000 and $70,000 to common and preferred shareholders, respectively, on December 15, 2021. On February 28, 2021, Dow sold 63,000 common shares. In keeping with its long-term share repurchase plan, 2,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2021, was $2,150,000. The income tax rate is 25%. Also, as a of a 2020 agreement for the acquisition of Merrill Cable Company, another 24,000 shares (already adjusted for the stock dividen to be issued to former Merrill shareholders on December 31, 2022, if Merrill's 2022 net income is at least $510,000. In 2021, Merr net income was $640,000. As part of an incentive compensation plan, Dow granted incentive stock options to division managers at December 31 of the curr and each of the previous two years. Each option permits its holder to buy one share of common stock at an exercise price equal market value at the date of grant and can be exercised one year from that date. Information concerning the number of options gr and common share prices follows: Options Granted (adjusted for the stock dividend) Date Granted Share Price
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On December 31, 2020, Dow Steel Corporation had 610,000 shares of common stock and 301,000 shares of 9%, noncumulative,
nonconvertible preferred stock issued and outstanding. Dow issued a 4% common stock dividend on May 15 and paid cash dividends
of $410,000 and $70,000 to common and preferred shareholders, respectively, on December 15, 2021.
On February 28, 2021, Dow sold 63,000 common shares. In keeping with its long-term share repurchase plan, 2,000 shares were
retired on July 1. Dow's net income for the year ended December 31, 2021, was $2,150,000. The income tax rate is 25%. Also, as a part
of a 2020 agreement for the acquisition of Merrill Cable Company, another 24,000 shares (already adjusted for the stock dividend) are
to be issued to former Merrill shareholders on December 31, 2022, if Merrill's 2022 net income is at least $510,000. In 2021, Merrill's
net income was $640,000.
As part of an incentive compensation plan, Dow granted incentive stock options to division managers at December 31 of the current
and each of the previous two years. Each option permits its holder to buy one share of common stock at an exercise price equal to
market value at the date of grant and can be exercised one year from that date. Information concerning the number
and common share prices follows:
options granted
Options Granted
(adjusted for the stock dividend)
9,000
4,000
7,500
Share Price
$ 10
$ 19
$ 18
Date Granted
December 31, 2019
December 31, 2020
December 31, 2021
The stock options issued in 2019 were not exercised in 2020 or 2021.
The market price of the common stock averaged $18 per share during 2021.
On July 12, 2019, Dow issued $500,000 of convertible 8% bonds at face value. Each $1,000 bond is convertible into 50 common
shares (adjusted for the stock dividend).
Required:
Compute Dow's basic and diluted earnings per share for the year ended December 31, 2021. (Enter your answers in thousands.
Round "Earnings per share" answers to 2 decimal places. Do not round intermediate calculations)
Numerator
Denominator
Earnings per share
Dow's basic
$
3.02
Dow's diluted
wwwwwwww
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