Question :
Charles Austin of the controller's office of Thompson Corporation was provided the assignment of evaluating the basic and diluted earnings per share values for the year ending 31st December, 2013. Austin has compiled the information listed below.
1. The company is authorized to issue 7,281,600 shares of $10 par value common stock. As of 31st December, 2012, 1,820,400 shares had been issued and were outstanding.
2. The per share market prices of the common stock on selected dates were as given.
Price per Share
July 1, 2012 $20
January 1, 2013 21
April 1, 2013 25
July 1, 2013 11
August 1, 2013 10.5
November 1, 2013 9
December 31, 2013 10
3. A total of 758,400 shares of an authorized 1,418,400 shares of translatable preferred stock had been issued on July 1, 2012. The stock was issued at its par value of $25, and it has a collective dividend of $3 per share. The stock is convertible into general stock at the rate of one share of convertible preferred for one share of common. The rate of conversion is to be automatically adjusted for stock splits and stock dividends. Dividends are paid quarterly on September 30, December 31, March 31, and June 30.
4. Thompson Corporation is subject to a 40 percent income tax rate.
5. The after-tax net income for the year ended December 31, 2013, was $12,230,000.
The subsequent specific activities took place during 2013.
1. January 1-A 5 percent common stock dividend was issued. The dividend had been declared on December 1, 2012, to all stockholders of record on December 29, 2012.
2. April 1-A total of 486,000 shares of the $3 convertible preferred stock was converted into general stock. The company issued new common stock and retired the preferred stock. This was the only conversion of the preferred stock during 2013.
3. July 1-A 2-for-1 split of the common stock became efficient on this date. The board of directors had authorized the split on June 1.
4. August 1-A total of 306,000 shares of general stock were issued to get a factory building.
5. November 1-A total of 33,500 shares of common stock were purchased on the open market at $9 per share. These shares were to be held as treasury stock and were still in the treasury as of December 31, 2013.
6. Common stock cash dividends-Cash dividends to common stockholders were declared and paid as follows.
April 15-$0.30 per share
October 15-$0.20 per share
7. Preferred stock cash dividends-Cash dividends to preferred stockholders were declared and paid as scheduled.
(a) Evaluate the number of shares used to determine basic earnings per share for the year ended December 31, 2013.
Number of shares to compute basic earnings per share
(b) Evaluate the number of shares used to determine diluted earnings per share for the year ended December 31, 2013.
Number of shares to evaluate diluted earnings per share
(c) Determine the adjusted net income to be used as the numerator in the basic earnings per share calculation for the year ended December 31, 2013.