Lizbeth Johnson, controller of Detroit Industries, a public company, is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for Detroit’s financial statements. Below is selected financial information for the fiscal year ended March 31, 2021. Long-term debt Notes payable to banks, 12% .................................................... $ 4,000,000 4% convertible bonds payable ..................................................... 8,000,000 12% bonds payable...................................................................... 3,000,000 Total long-term debt.................................................................................. $15,000,000 Shareholders’ equity Preferred stock, 5% cumulative, $100 par value, 100,000 shares authorized, 50,000 shares issued and outstanding ....................................................................... $ 5,000,000 Common stock, $1 par, 10,000,000 shares authorized, 500,000 shares issued and outstanding .......................................... 500,000 Additional paid-in capital ............................................................ 9,400,000 Retained earnings ....................................................................... 2,900,000 Total shareholders’ equity ......................................................................... $17,800,000 The following transactions have also occurred at Detroit. Options were granted on October 1, 2020, to purchase 150,000 shares at $21 per share. Although no options were exercised during fiscal year 2021, the average price per common share during fiscal year 2021 was $24 per share. Each bond was issued at face value. The 4% convertible bonds will convert into common stock at 30 shares per $1,000 bond. The bonds are exercisable after 5 years and were issued in fiscal year 2018. The preferred stock was issued in 2019. There are no preferred dividends in arrears; however, preferred dividends were not declared in fiscal year 2021. The 500,000 shares of common stock were outstanding for the entire 2021 fiscal year. Net income for fiscal year 2021 was $2,700,000, and the average income tax rate is 30%. For the fiscal year ended March 31, 2021, calculate the following for Detroit Industries. (a) Basic earnings per share. (b) Diluted earnings per share
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
Lizbeth Johnson, controller of Detroit Industries, a public company, is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for Detroit’s financial statements. Below is selected financial information for the fiscal year ended March 31, 2021.
Long-term debt
Notes payable to banks, 12% .................................................... $ 4,000,000
4% convertible bonds payable ..................................................... 8,000,000
12% bonds payable...................................................................... 3,000,000
Total long-term debt.................................................................................. $15,000,000
Shareholders’ equity
Preferred stock, 5% cumulative, $100 par value,
100,000 shares authorized, 50,000 shares issued
and outstanding ....................................................................... $ 5,000,000
Common stock, $1 par, 10,000,000 shares authorized,
500,000 shares issued and outstanding .......................................... 500,000
Additional paid-in capital ............................................................ 9,400,000
Total shareholders’ equity ......................................................................... $17,800,000
The following transactions have also occurred at Detroit.
- Options were granted on October 1, 2020, to purchase 150,000 shares at $21 per share. Although no options were exercised during fiscal year 2021, the average price per common share during fiscal year 2021 was $24 per share.
- Each bond was issued at face value. The 4% convertible bonds will convert into common stock at 30 shares per $1,000 bond. The bonds are exercisable after 5 years and were issued in fiscal year 2018.
- The preferred stock was issued in 2019.
- There are no preferred dividends in arrears; however, preferred dividends were not declared in fiscal year 2021.
- The 500,000 shares of common stock were outstanding for the entire 2021 fiscal year.
- Net income for fiscal year 2021 was $2,700,000, and the average income tax rate is 30%.
For the fiscal year ended March 31, 2021, calculate the following for Detroit Industries.
(a) Basic earnings per share.
(b) Diluted earnings per share
Basic earnings per share = (Net Income - Preferred Dividends)/ Weighted-Average Shares
Diluted earnings per share = Net Income - Preferred Dividends + Interest (net of tax)/ Average Common Shares + Potentially Dilutive Common Shares
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