Anchor, Inc. had income after taxes of $500,000 for the current year. An average of 125,000 shares of Anchor’s common stock was outstanding for the entire year, and 130,000 shares were outstanding at year-end. In addition, options were outstanding throughout the year to buy 12,000 shares of Anchor common stock at $7.50 per share. During the year, Anchor’s common stock had an average market price of $9 per share. The stock was selling for $10 per share at year-end. Anchor is subject to a 34% tax rate and amortizes its bonds using a straight-line method. Anchor had the following convertible securities outstanding throughout the current year:
1. 6%, cumulative, convertible preferred stock. Each $10 par value share is convertible into 1.5 common shares. A total of $100,000 par value is outstanding.
2. 8%, 10-year, $1,000 par convertible bonds that were issued at 105. Total par value outstanding is $100,000. Each bond converts into 90 shares of common stock.
3. 13%, 5-year, $1,000 par convertible bonds that were issued at 97. Total par value outstanding is $30,000. Each bond converts into 30 shares of common stock.
4. 7%, 8-year, $1,000 par convertible bonds that were issued at 95. Total par value outstanding is $60,000. Each bond converts into 20 shares of common stock.
5. An 11%, 20-year, $1,000 par convertible bonds that were issued at face value. The total par value outstanding is $500,000. Each bond converts into 20 shares of common stock.
Required:
Calculate Anchor Inc.’s basic and diluted EPS for the current year.
Note: Use straight-line amortization for all the bonds. For example, if you have a 15 year, 10%, $1,000 face value bond issued at 85 and a $150 discount at issue, then $10 will be amortized each period using straight line amortization. You would have the following:
At issue:
Cash 850
Discount on B/P 150
Bonds Payable 1,000
Periodic entries:
Interest Expense 110
Discount on B/P 10
Cash 100

Basic EPS 3.95

Basic EPS Dilutive 3.337

Explanation:

Calculation for the basic and diluted EPS for the current year

First step is to find the convertible securities outstanding for the current year from 1 to 5

1. Numerator effect=6,000

(6%*100,000)

Denominator effect=15,000

[(100,000/10)*1.5]

ME=6000/15,000=.402.

2. Premium=5,000

[(105%-100%)*100,000]

Yearly Amortization= 500

5,000/10 years

Yearly Payment= 8,000

(8%*100,000)

Numerator effect= 8,000-500

= 7,500 * (100%-34%)= 4,950

Denominator effect= 100,000/1,000

= 100*90 per share= 9000

ME= 4,950/9,000

ME=.553.13 percent

3. Discount=900

[(100%-97%)*30,000]

Yearly Amortization=180

(900/5years)

Yearly Payment=3,900

Numerator effect= 3,900+180

=4,080*(100%-34%)

= 2,692.8

Denominator effect= 900

ME=2693/900

ME= 2.994.7 percent

4. Discount=3,000

(60,000/20)

Yearly Amortization=375

(3,000/ 8years )

Yearly Payment= 4,200

Numerator effect= 4,200+375

Numerator effect= 4,575*(100%-34%)

= 3,019.5

Denominator effect= 1,200

ME= 3020/1200= 2.525

5. Numerator effect= 55,000*(100%-34%)

= 36,300

(11%*500,000=55,000)

Denominator effect= 10,000

ME=36300/10000= 3.63

Second step is to calculate the basic and diluted EPS

Calcualtion for BASIC EPS

Net income = 500,000- (100,000*.06=6000)

Net income= 494,000

Average Outstanding=125,000

Using this formula

Basic EPS=Net income/Average Outstanding

Let plug in the formula

Basic EPS:494,000/125,000

Basic EPS=3.95

Therefore the Basic EPS will be 3.95

Calculation for BASIC EPS DILUTIVE

Dilutive=494,000+6,000+4,950+2,693+3,020/125,000+2,000+15,000+9,000+900+1200

Basic EPS Dilutive=510,663/153,000

Basic EPS Dilutive=3.337

Therefore Basic EPS Dilutive will be 3.337

answer; the correct answer should be (demonstrations); good luck

the correct answer is:

it required the president to inform congress within forty-eight hours of any new troop commitment.

the war powers resolution (1973) is a federal law designed to limit the u.s. president’s ability to initiate or intensify military actions abroad without the approval of the congress.

it establishes that the president can send armed forces into action abroad only by declaration of war by congress, statutory authorization, or in case of a national emergency created by attack upon the united states, its territories or possessions, or its armed forces.

it requires the president to notify congress within 48 hours of sending armed forces to military action.