Reference no: EM133105725

Question - a. Swifty Corporation reported net income of $257,600 in 2020 and had 55,000 shares of common stock outstanding throughout the year. Also outstanding all year were 4,700 shares of cumulative preferred stock, each convertible into 2 shares of common. The preferred stock pays an annual dividend of $5 per share. Swifty's tax rate is 40%.

Compute Swifty's 2020 diluted earnings per share.

b. On June 1, 2018, Sage Company and Pronghorn Company merged to form Stellar Inc. A total of 870,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis.

On April 1, 2020, the company issued an additional 577,000 shares of stock for cash. All 1,447,000 shares were outstanding on December 31, 2020.

Stellar Inc. also issued $600,000 of 20-year, 9% convertible bonds at par on July 1, 2020. Each $1,000 bond converts to 40 shares of common at any interest date. None of the bonds have been converted to date.

Stellar Inc. is preparing its annual report for the fiscal year ending December 31, 2020. The annual report will show earnings per share figures based upon a reported after-tax net income of $1,564,000. (The tax rate is 20%.)

Determine the following for 2020.

(a) The number of shares to be used for calculating:

(1) Basic earnings per share

(2) Diluted earnings per share

(b) The earnings figures to be used for calculating:

(1) Basic earnings per share

(2) Diluted earnings per share