Chapter 16, Problem 24P

Frost Company has accumulated the following information relevant to its 2016 earnings per share.

1. 1. Net income for 2016: $150,500.
2. 2. Bonds payable: On January 1, 2016, the company had issued 10%, $200,000 bonds at 110. The premium is being amortized in the amount of $1,000 per year. Each $1,000 bond is currently convertible into 22 shares of common stock. To date, no bonds have been converted.
3. 3. Bonds payable: On December 31, 2014, the company had issued $540,000 of 5.8% bonds at par. Each $1,000 bond is currently convertible into 11.6 shares of common stock. To date, no bonds have been converted.
4. 4. Preferred stock: On July 3, 2015, the company had issued 3,800 shares of 7.5%, $100 par, preferred stock at $108 per share. Each share of preferred stock is currently convertible into 2.45 shares of common stock. To date, no preferred stock has been converted and no additional shares of preferred stock have been issued. The current dividends have been paid.
5. 5. Common stock: At the beginning of 2016, 25,000 shares were outstanding. On August 3, 7,000 additional shares were issued. During September, a 20% stock dividend was declared and issued. On November 30, 2,000 shares were reacquired as treasury stock.
6. 6. Compensatory share options: Options to acquire common stock at a price of $33 per share were outstanding during all of 2016. Currently, 4,000 shares may be acquired. To date, no options have been exercised. The unrecognized compensation cost (net of tax) related to these options is $5 per share.
7. 7. Miscellaneous: Stock market prices on common stock averaged $41 per share during 2016, and the 2016 ending stock market price was $40 per share. The corporate income tax rate is 30%.

Required:

1. 1. Compute the basic earnings per share. Show supporting calculations.
2. 2. Compute the diluted earnings per share. Show supporting calculations.
3. 3. Indicate which earnings per share figure(s) Frost would report on its 2016 income statement.