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Determine the number of shares

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Question - On June 1, 2018, Gustav Corp. and Gabby Limited merged to form Sheridan Inc. A total of 880,000 shares were issued to complete the merger. The new corporation uses the calendar year as its fiscal year.

On April 1, 2020, the company issued an additional 440,000 shares for cash. All 1.32 million shares were outstanding on December 31, 2020. Sheridan Inc. also issued $660,000 of 20-year, 10% convertible bonds at par on July 1, 2020. Each $1,000 bond converts to 41 common shares at the annual interest date. None of the bonds have been converted to date. If the bonds had been issued without the conversion feature, the annual interest rate would have been 11%.

Sheridan Inc. is preparing its financial statements for the fiscal year ended December 31, 2020. The financial statements will show earnings per share figures based on a reported after-tax net income of $1,710,000. (The tax rate is 30%).

Required -

a. Determine for 2020 the number of shares to be used in calculating: 1. Basic earnings per share, 2. Diluted earnings per share.

b. Determine for 2020 the earnings figures to be used in calculating: 1. Basic earnings per share, 2. Diluted earnings per share. (Use a financial calculator or Excel functions in arriving at the calculations for the bonds.)

Reference no: EM132616927

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