ACCT 304 Chapter 16 QUIZ

ACCT 304 Chapter 16 QUIZ
P16 5 EPS with Complex Capital Structure Amy Dyken, controller at Fitzgerald Pharmaceutical Industries
a public company, is currently preparing the calculation for basic and diluted earnings per share and
the related disclosure for Fitzgerald- financial statements. Below is selected financial information for the
fiscal year ended June 30, 2012.

FITZGERALD PHARMACEUTICAL INDUSTRIES
SELECTED BALANCE SHEET
INFORMATION
JUNE 30, 2012
Long-term debt
Notes payable, 10% $ 1,000,000
8% convertible bonds payable 5,000,000
10% bonds payable 6,000,000
Total long-term debt $12,000,000
Shareholders’ equity
Preferred stock, 6% 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
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The following transactions have also occurred at Fitzgerald.
1. Options were granted on July 1, 2011, to purchase 200,000 shares at $15 per share. Although no
options were exercised during fiscal year 2012, the average price per common share during fiscal
year 2012 was $20 per share.
2. Each bond was issued at face value. The 8% convertible bonds will convert into common stock at
50 shares per $1,000 bond. The bonds are exercisable after 5 years and were issued in fiscal year 2011.
3. The preferred stock was issued in 2011.
4. There are no preferred dividends in arrears; however, preferred dividends were not declared in fiscal
year 2012.
5. The 1,000,000 shares of common stock were outstanding for the entire 2012 fiscal year.
6. Net income for fiscal year 2012 was $1,500,000, and the average income tax rate is 40%.
Instructions
For the fiscal year ended June 30, 2012, calculate the following for Fitzgerald Pharmaceutical Industries.
(a) Basic earnings per share.
(b) Diluted earnings per share.