ACC 312 - Ch 15 Part 2

Simple Capital Structure

without dilutive securities

EPS is only for

common stock

Income applicable for common stock

Net Income - Preferred Dividend

Basic EPS denominator

Weighted average number of common shares outstanding

Weighted average number of common shares outstanding; Stock Split

do a stock split for all months up until month of actual stock split

Weighted average number of common shares outstanding: columns

Date, BB, Issuance, EB, Stock Split Consideration, Adjusted Balance, Months Outstanding, Weighted Shares

Weighted average number of common shares outstanding: months outstanding

months between current transaction and next transaction

As If Converted Method

pretend as if converted at issue date

Diluted EPS Numerator

Net Income - preferred divided + (bond amount)(interest rate)(months outstanding)(1-.21)

Diluted EPS denominator

WA common shares outstanding + convertible to common shares(months outstanding)

anti dilutive security

when D EPS > EPS; not included in final diluted eps bc less conservative and will not be converted

convertible preferred stock

handle same way as bonds but preferred dividends are not tax deductible (do not multiply by (1-.21)

Stock Warrant EPS method

Treasury Stock Method

Stock Warrant EPS Step 1

Sell common stock

i.e. 20000 shares x $12 exercise price = 240000

Stock Warrant EPS Step 2

Purchase Treasury Stock

i.e. $240000/$15 per share market price = 16000 shares

Stock Warrant EPS Numerator

Net income - preferred dividends

Stock Warrant EPS Denominator

WA Shares + step 4

Stock Warrant EPS Step 3

Calculate change in number of common shares

i.e. 20000 - 16000 = 4000

Stock Warrant EPS Step 4

Adjust for fractional part of year

i.e. 4000 × 6/12 = 2000

Is it dilutive?

is calculated EPS < Basic EPS