Solved by verified expert :On January 1, 2012, Bailey Industries had stock outstanding
as follows.
6% Cumulative preferred stock, $100 par value, issued and
outstanding 10,000 shares $1,000,000
Common stock, $10 par value, issued and outstanding 200,000
shares 2,000,000

To acquire the net assets of three smaller companies, Bailey
authorized the issuance of an additional 170,000 common shares. The
acquisitions took place as shown below.
Date of Acquisition Shares
Company A April 1, 2012 60,000
Company B July 1, 2012 80,000
Company C October 1, 2012 30,000

On May 14, 2012, Bailey realized a $90,000 (before taxes)
insurance gain on the expropriation of investments originally purchased in
On December 31, 2012, Bailey recorded net income of $300,000
before tax and exclusive of the gain.
Assuming a 40% tax rate, compute the earnings per share data
that should appear on the financial statements of Bailey Industries as of
December 31, 2012. Assume that the expropriation is extraordinary.

(computation of Basic and Diluted Eps)

Charles Austin of the controller’s office of Thompson
Corporation was given the assignment of determining the basic and
dilutedearnings per share values for the year ending December 31, 2013. Austin
has compiled the information listed below.

1. The company is authorized to issue 8,000,000 shares of
$10 par value common stock. As of December 31, 2012, 2,000,000 shares had been
issued and were outstanding.
2. The per sharemarket prices of the common stock on
selected dates were as follows.
Price per Share
July 1, 2012 $20.00
January 1, 2013 21.00
April 1, 2013 25.00
July 1, 2013 11.00
August 1, 2013 10.50
November 1, 2013 9.00
December 31, 2013 10.00

3. A total of 700,000 shares of an authorized 1,200,000
shares of convertible preferred stock had been issued on July 1, 2012. The
stock was issued at its par value of $25, and it has a cumulative dividend of
$3 per share. The stock is convertible into common stock at the rate of one
share of convertible preferred for oneshare of common. The rate of conversion
is to be automatically adjusted for stock splits and stockdividends. Dividends
are paid quarterly on September 30, December 31, March 31, and June 30.
4. Thompson Corporation is subject to a 40% income tax rate.
5. The after-tax net income for the year ended December 31,
2013, was $11,550,000.

The following specific activities took place during 2013.

1. January 1—A 5% commonstockdividend 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 400,000 shares of the $3 convertible
preferred stock was converted into common 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
effective on this date. The board of directors had authorized the split on June
4. August 1—A total of 300,000 shares of common stock were
issued to acquire a factory building.
5. November 1—A total of 24,000 shares of common stock were
purchased on the openmarket 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) Determine the number of shares used to compute basic
earnings per share for the year ended December 31, 2013.
(b) Determine the number of shares used to compute diluted
earnings per share for the year ended December 31, 2013.
(c) Compute the adjusted net income to be used as the
numerator in the basicearnings per share calculation for the year ended
December 31, 2013.

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