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    Basic and Diluted EPS

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    Berry Company

    1) Net income (including an extraordinary gain (net tax) of $70,000 $230,000

    2) Capital Structure
    a) cumulative 8% preferred stock, $100 par 6,000 shares issued/outstanding $600,000

    b) $10 par common stock, 74,000 shares outstanding on January 1. $1,000,000
    On April 1, 40,000 shares were issued for cash. On October 1, 16,000
    shares were purchased and retired.

    c) On January 2 of the current year, Berry purchased Raye Corp.
    One of the terms of the purchase was that if Berry's net income
    for the following year is $240,000 or more 50,000 shares would
    be issued to Raye stockholders next year.

    3) Other information
    a) average market price per share of common stock during entire year $30
    b) Income tax rate 30%

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    Solution Preview

    We first find out the weighted average shares outstanding
    74,000 shares are outstanding from Jan 1 to Mar 31 = 3 months
    (74,000+40,000)=114,000 shares are outstanding from April 1 to Sep 30 = 6 months
    (114,000-16,000)=98,000 shares are outstanding from Oct 1 to Dec 31 = 3 months
    Weighted average ...

    Solution Summary

    The solution explains how to calculate the basic and diluted EPS