P16-7 (Computation of Basic and Diluted EPS) Charles Austin ofthe controllerâs office of Thompson Corporation was given theassignment of determining the basic and diluted earnings per sharevalues for the year ending December 31, 2015. Austin has compiledthe information listed below. 1. The company is authorized to issue8,000,000 shares of $10 par value common stock. As of December 31,2014, 2,000,000 shares had been issued and were outstanding. 2. Theper share market prices of the common stock on selected dates wereas follows. Price per ShareJuly 1, 2014 $20.00January 1, 2015 21.00April 1, 2015 25.00July 1, 2015 11.00 August 1, 2015 10.50November1, 2015 9.00December 31, 2015 10.00 3. A total of 700,000 shares ofan authorized 1,200,000 shares of convertible preferred stock hadbeen issued on July 1, 2014. The stock was issued at its par valueof $25, and it has a cumulative dividend of $3 per share. The stockis convertible into common stock at the rate of one share ofconvertible preferred for one share of common. The rate ofconversion is to be automatically adjusted for stock splits andstock dividends. Dividends are paid quarterly on September 30,December 31, March 31, and June 30. 4. Thompson Corporation issubject to a 40% income tax rate. 5. The after-tax net income forthe year ended December 31, 2015, was $11,550,000.The followingspecific activities took place during 2015. 1. January 1âA 5%common stock dividend was issued. The dividend had been declared onDecember 1, 2014, to all stockholders of record on December 29,2014.April 1âA total of 400,000 shares of the $3 convertiblepreferred stock was converted into common stock. The company issuednew common stock and retired the preferred stock. This was the onlyconversion of the preferred stock during 2015. 3. July 1âA 2-for-1split of the common stock became effective on this date. The boardof directors had authorized the split on June 1. 4. August 1âAtotal of 300,000 shares of common stock were issued to acquire afactory building. 5. November 1âA total of 24,000 shares of commonstock were purchased on the open market at $9 per share. Theseshares were to be held as treasury stock and were still in thetreasury as of December 31, 2015. 6. Common stock cashdividendsâCash dividends to common stockholders were declared andpaid as follows. April 15â$0.30 per share October 15â$0.20 pershare 7. Preferred stock cash dividendsâCash dividends to preferredstockholders were declared and paid as scheduled. Instructions (a)Determine the number of shares used to compute basic earnings pershare for the year ended December 31, 2015. (b) Determine thenumber of shares used to compute diluted earnings per share for theyear ended December 31, 2015. (c) Compute the adjusted net incometo be used as the numerator in the basic earnings per sharecalcu-lation for the year ended December 31, 2015.

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1.		The company is authorized to issue 9,427,200 shares of $10 parvalue common stock. As of December 31, 2014, 2,356,800 shares hadbeen issued and were outstanding.
2.		The per share market prices of the common stock on selecteddates were as follows.

		Price per Share
July 1, 2014		$20
January 1, 2015		21
April 1, 2015		25
July 1, 2015		11
August 1, 2015		10.5
November 1, 2015		9
December 31, 2015		10

3.		A total of 712,800 shares of an authorized 1,389,600 shares ofconvertible preferred stock had been issued on July 1, 2014. Thestock was issued at its par value of $25, and it has a cumulativedividend of $3 per share. The stock is convertible into commonstock at the rate of one share of convertible preferred for oneshare of common. The rate of conversion is to be automaticallyadjusted for stock splits and stock dividends. Dividends are paidquarterly on September 30, December 31, March 31, and June 30.
4.		Thompson Corporation is subject to a 40% income tax rate.
5.		The after-tax net income for the year ended December 31, 2015,was $11,620,000.

1.		January 1âA 5% common stock dividend was issued. The dividendhad been declared on December 1, 2014, to all stockholders ofrecord on December 29, 2014.
2.		April 1âA total of 436,800 shares of the $3 convertiblepreferred stock was converted into common stock. The company issuednew common stock and retired the preferred stock. This was the onlyconversion of the preferred stock during 2015.
3.		July 1âA 2-for-1 split of the common stock became effective onthis date. The board of directors had authorized the split on June1.
4.		August 1âA total of 334,800 shares of common stock were issuedto acquire a factory building.
5.		November 1âA total of 32,100 shares of common stock werepurchased on the open market at $9 per share. These shares were tobe held as treasury stock and were still in the treasury as ofDecember 31, 2015.
6.		Common stock cash dividendsâCash dividends to commonstockholders were declared and paid as follows.
		April 15â$0.30per share
		October 15â$0.20per share
7.		Preferred stock cash dividendsâCash dividends to preferredstockholders were declared and paid as scheduled.

1.		The company is authorized to issue 8,481,600 shares of $10 parvalue common stock. As of December 31, 2014, 2,120,400 shares hadbeen issued and were outstanding.
2.		The per share market prices of the common stock on selecteddates were as follows.

3.		A total of 769,200 shares of an authorized 1,382,400 shares ofconvertible preferred stock had been issued on July 1, 2014. Thestock was issued at its par value of $25, and it has a cumulativedividend of $3 per share. The stock is convertible into commonstock at the rate of one share of convertible preferred for oneshare of common. The rate of conversion is to be automaticallyadjusted for stock splits and stock dividends. Dividends are paidquarterly on September 30, December 31, March 31, and June 30.
4.		Thompson Corporation is subject to a 40% income tax rate.
5.		The after-tax net income for the year ended December 31, 2015,was $11,800,000.

1.		January 1âA 5% common stock dividend was issued. The dividendhad been declared on December 1, 2014, to all stockholders ofrecord on December 29, 2014.
2.		April 1âA total of 439,200 shares of the $3 convertiblepreferred stock was converted into common stock. The company issuednew common stock and retired the preferred stock. This was the onlyconversion of the preferred stock during 2015.
3.		July 1âA 2-for-1 split of the common stock became effective onthis date. The board of directors had authorized the split on June1.
4.		August 1âA total of 310,800 shares of common stock were issuedto acquire a factory building.
5.		November 1âA total of 33,200 shares of common stock werepurchased on the open market at $9 per share. These shares were tobe held as treasury stock and were still in the treasury as ofDecember 31, 2015.
6.		Common stock cash dividendsâCash dividends to commonstockholders were declared and paid as follows.
		April 15â$0.30per share
		October15â$0.20 per share
7.		Preferred stock cash dividendsâCash dividends to preferredstockholders were declared and paid as scheduled.