Question

Keene Co. has 2,000,000 shares of common stock outstanding on December 31, 2018. An additional 100,000 shares are issued on April 1, 2019, and 240,000 more on September 1. On September 1, 2019, Keene issued $3,000,000 of 9% convertible bonds. Each $1,000 bond is convertible into 60 shares of common stock. No bonds have been converted. Assume the bonds are dilutive. The number of shares to be used in computing basic earnings per share and diluted earnings per share on December 31, 2019 is

Answer 1

The number of shares to be used in computing basic earnings per share and diluted earnings per share on December 31, 2019 is -

Basic Earnings Per Share = 2,155,000 shares AND

Diluted Earnings Per Share = 2,215,000 shares

Step-by-step explanation:

Basic Earnings per Share = Earnings Attributable to holders of Common Stocks ÷ Weighted Average Number of Common Stocks Outstanding.

For Basic Earnings per Share calculations, Weighted Average Number of Common Stocks Outstanding will be,

Weighted Average Number of Common Stocks Outstanding :

Outstanding at beginning of the year 2,000,000

Issued April 1, 2019 : (100,000 × 9/12) 75,000

Issued September 1 : (240,000 × 4/12) 80,000

Weighted Average Number of Common Stocks Outstanding 2,155,000

For Diluted Earnings per Share calculations, entity takes into account potential voting right that arise from other financial instruments in issue as follows,

Weighted Average Number of Common Stocks Outstanding :

Outstanding at beginning of the year 2,000,000

Issued April 1, 2019 : (100,000 × 9/12) 75,000

Issued September 1 : (240,000 × 4/12) 80,000

Convertible Bonds : ($3,000,000/ $1,000 × 60) × 4/12 60,000

Weighted Average Number of Common Stocks Outstanding 2,215,000