Earnings Per Share The controller of Lafayette Corporation has requested assistance in determining income, basic earnings per share, and diluted earnings per share for presentation in the company’s income state- ment for the year ended September 30, 2008. As currently calculated, the company’s net income is $540,000 for fiscal year 2007–2008.

Your working papers disclose the following opening balances and transactions in the company’s capital stock accounts during the year:

1.      Common stock (at October 1, 2007, stated value $10, authorized 300,000 shares; effective December 1, 2007, stated value $5, authorized 600,000 shares):

Balance, October 1, 2007—issued and outstanding 60,000 shares December 1, 2007—60,000 shares issued in a two-for-one stock split

December 1, 2007—280,000 shares (stated value $5) issued at $39 per share

2.      Treasury stock—common:

March 3, 2008—purchased 40,000 shares at $38 per share April 1, 2008—sold 40,000 shares at $40 per share

3.      Noncompensatory stock purchase warrants, Series A (initially, each warrant was exchangeable with $60 for one common share; effective December 1, 2007, each warrant became exchangeable for two common shares at $30 per share):

October 1, 2007—25,000 warrants issued at $6 each

 

4.      Noncompensatory stock purchase warrants, Series B (each warrant is exchangeable with $40 for one common share): April 1, 2008—20,000 warrants authorized and issued at $10 each.

5.      First mortgage bonds, 5 1/2%, due 2020 (nonconvertible; priced to yield 5% when issued): Balance October 1, 2007—authorized, issued, and outstanding—the face value of $1,400,000

6.      Convertible debentures, 7%, due 2027 (initially, each $1,000 bond was convertible at any time until maturity into 20 common shares; effective December 1, 2007, the conversion rate became 40 shares for each bond):

October 1, 2007—authorized and issued at their face value (no premium or discount) of $2,400,000.

The following table shows the average market prices for the company’s securities during 2007–2008  :

Common stock 1 37-- 2 First mortgage bonds 87 Convertible debentures 115 Series A Warrants 15 Series B Warrants *Adjusted for stock split. 1 9-- 2   Â

Average for Year Ended September 30, 2008

*

 

 

 

 

 

 

Required

Prepare a schedule computing:

1.      The basic earnings per share.

2.      The diluted earnings per share that should be presented in the Company’s income statement for the year ended September 30, 2008.

A supporting schedule computing the numbers of shares to be used in these computations should also be prepared. Assume an income tax rate of 30%.