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Compute Basic EPS and Diluted EPS for Bare Industry

See attached Excel sheet for better format.

Please show how you get all calculations.

William Crane, controller at Bare Industry, a public company, is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for Bare's external financial statements. Below is selected financial information for the fiscal year ended

June 30, 2011.

Bare Industry
Selected Statement of Financial Position
June 30, 2011

Long- term debt Notes payable, 10% $1,000,000
7% convertible bonds payable 5,000,000
10% bonds payable 6,000,000
Total long- term debt $12,000,000

Shareholders equity
Preferred stock, 8.5% cumulative, $ 50 par value,
100,000 shares authorized, 25,000 shares issued
and outstanding $1,250,000
Common stock, $ 1 par, 10,000,000 shares authorized,
1,000,000 shares issued and outstanding 1,000,000
Additional paid- in capital 4,000,000
Retained earnings 6,000,000
Total shareholders equity $12,250,000

The following transactions have also occurred at Bare.

1. Options were granted in 2009 to purchase 100,000 shares at $15 per share.
Although no options were exercised during 2011, the average price per common
share during fiscal year 2011 was $20 per share.

2. Each bond was issued at face value. The 7% convertible debenture will
convert into common stock at 50 shares per $1,000 bond.
It is exercisable after 5 years and was issued in 2010.

3. The 8.5% preferred stock was issued in 2009.

4. There are no preferred dividends in arrears; however, preferred dividends
were not declared in fiscal year 2011.

5. The 1,000,000 shares of common stock were outstanding for the entire
2011 fiscal year.

6. Net income for fiscal year 2011 was $1,500,000 and the average income
tax rate is 40%

Instructions: For the fiscal year ended June 30, 2011, calculate the following for
Bare Industry.

( a) Basic earnings per share.

( b) Diluted earnings per share.

Instructions: For the fiscal year ended June 30, 2011, calculate the following for
Bare Industry.

Net Income - Preferred Dividends
( a) Basic earnings per share = Average Common Shares Outstanding

Basic earnings per share = Amount

Basic earnings per share = Formula

Net Income - (1) Preferred Dividends + (2) Interest [net of tax]
( b) Diluted EPS = Ave. Common Shares Outstanding + (3) Potentially Dilutive Shares

Notes: (1) Preferred Dividends = Rate x (Shares Outstanding x Par Value)

Preferred Dividends = Formula

(2) Interest = (interest rate x covertible bonds) x (1 - tax rate)

Interest = Formula

(3) Potentially Dilutive Shares include (a) convertible bonds & (b) stock options:

a. Convertible Bonds = (Principal divided by $1,000) x 50 shares

Convertible Bonds = Formula shares

b. Stock Options = Use Treasury Method to determine incremental shares

1. Calculate proceeds from exercise of options = shares x price


2. Calculate incremental shares from options:

Shares issued upon exercise of options Amount shares

Shares to be purchased from proceeds (b1)
= Proceeds divided by Average Market Price Formula shares

Net incremental shares from options = #VALUE! shares

Diluted earnings per share = Amount

Diluted earnings per share = Formula


Solution Summary

Your tutorial is in Excel (attached). Click in cells to see computations.

A note is left for you about how to handle cumulative preferred stock when dividends are not declared.