The shareholders’ equity of Proactive Solutions, Inc., included the following at December 31, 2016: Common stock, $1 par Paid-in capital—excess of par on common stock 7% cumulative convertible preferred stock, $100 par value Paid-in capital—excess of par on preferred stock Retained earnings Additional Information: • Proactive had 7 million shares of preferred stock authorized of which 2 million were outstanding. All 2 million shares outstanding were issued in 2010 for $112 a share. The preferred stock is convertible into common stock on a two-for-one basis until December 31, 2018, after which the preferred stock no longer is convertible. None of the preferred stock has been converted into common stock at December 31, 2016. There were no dividends in arrears. • Of the 13 million common shares authorized, there were 8 million shares outstanding at January 1, 2016. Proactive also sold 3 million shares at the beginning of September 2016 at a price of $52 a share. • The company has an employee stock option plan in which certain key employees and officers may purchase shares of common stock at the market price at the date of the option grant. All options are exercisable beginning one year after the date of the grant and expire if not exercised within five years of the grant date. On January 1, 2016, options for 2 million shares were outstanding at prices ranging from $45 to $53 a share. Options for 1 million shares were exercised at $49 a share at the end of June 2016. No options expired during 2016. Additional options for 1.5 million shares were granted at $55 a share during the year. The 2.5 million options outstanding at December 31, 2016, were exercisable at $45 to $55 a share. The only changes in the shareholders’ equity for 2016 were those described above, 2016 net income, and cash dividends paid. Required: Explain how each of the following amounts should be determined when computing earnings per share for presentation in the income statements. For each, be specific as to the treatment of each item. 1. Numerator for basic EPS. 2. Denominator for basic EPS. 3. Numerator for diluted EPS. 4. Denominator for diluted EPS.
The shareholders’ equity of Proactive Solutions, Inc., included the following at December 31, 2016:
Common stock, $1 par
Paid-in capital—excess of par on common stock
7% cumulative convertible preferred stock, $100 par value
Paid-in capital—excess of par on preferred stock
Additional Information:
• Proactive had 7 million shares of preferred stock authorized of which 2 million were outstanding. All 2 million
shares outstanding were issued in 2010 for $112 a share. The preferred stock is convertible into common
stock on a two-for-one basis until December 31, 2018, after which the preferred stock no longer is convertible.
None of the preferred stock has been converted into common stock at December 31, 2016. There were
no dividends in arrears. • Of the 13 million common shares authorized, there were 8 million shares outstanding at January 1, 2016. Proactive
also sold 3 million shares at the beginning of September 2016 at a price of $52 a share.
• The company has an employee stock option plan in which certain key employees and officers may purchase
shares of common stock at the market price at the date of the option grant. All options are exercisable
beginning one year after the date of the grant and expire if not exercised within five years of the grant
date. On January 1, 2016, options for 2 million shares were outstanding at prices ranging from $45 to $53
a share. Options for 1 million shares were exercised at $49 a share at the end of June 2016. No options
expired during 2016. Additional options for 1.5 million shares were granted at $55 a share during the year.
The 2.5 million options outstanding at December 31, 2016, were exercisable at $45 to $55 a share.
The only changes in the shareholders’ equity for 2016 were those described above, 2016 net income, and cash
dividends paid.
Required:
Explain how each of the following amounts should be determined when computing earnings per share for presentation
in the income statements. For each, be specific as to the treatment of each item.
1. Numerator for basic EPS.
2. Denominator for basic EPS.
3. Numerator for diluted EPS.
4. Denominator for diluted EPS.
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