
1.
Compute the basic earnings per share for Company M.
1.

Explanation of Solution
Earnings per share (EPS): The amount of net income available to each shareholder per common share outstanding is referred to as earnings per share (EPS).
Compute the basic earnings per share for Company M.
Working note: (1) Calculation of weighted average shares outstanding:
(Table1)
2.
Compute the tentative and incremental dilutive earnings per share for each dilutive security.
2.

Explanation of Solution
Compute tentative diluted EPS for stock options.
Compute the incremental diluted EPS for stock options.
Compute the incremental diluted EPS for convertible bonds.
Compute the incremental diluted EPS of convertible preferred stock.
Compute tentative diluted EPS assuming for 12% convertible preferred stock.
Compute tentative diluted EPS assuming, exercisable options, 9% convertible bonds, and 12% convertible preferred stock.
Working notes (1): Calculate the value of exercisable options:
Working notes (2): Compute the number of shares required:
Working notes (3): Compute the total weighted average number of common shares.
(Figure 2)
Working notes (4): Compute the amount of interest expense, net of income tax on 9% bonds.
Working notes (5): Compute the number of common shares due to conversion of 9% bonds.
Working notes (6): Compute the number of common shares due to conversion of preferred shares.
3.
Identify the amount that will be reported as basic and diluted earnings per share for the year 2016.
3.

Explanation of Solution
The Company M must report an amount of $1.95 as basic earnings per share and $1.64 as diluted earnings per share in its 2016 income statement.
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Chapter 16 Solutions
Intermediate Accounting: Reporting and Analysis, 2017 Update
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