ACCOUNTING-Red Lake Corporation EPS problem Assuming a tax rate of 30%

Red Lake Corporation

EPS problem

Assuming a
tax rate of 30%, calculate basic and diluted earnings per share for the
fiscal year ended September 30, 2014.

Net income is $540,000.

Common stock at October 1, 2013:

10/1/2013

Par $10

Authorized shares
300,000

12/1/2013

Par $5

Authorized shares
600,000

December 1, 2013, 60,000 shares
issued in 2 for 1 stock split

December 1, 2013, 280,000 shares ($5
par) issued at $39

Treasury stock

March 3, 2014, purchased 40,000
shares at $38 per share

April 1, 2014, sold 40,000 shares at
$40 per share

Non-compensatory stock purchase
warrants, Series A

Originally, each warrant was
exchangeable with $60 for 1 share common stock

December 1, 2013, each warrant
became exchangeable for 2 share common stock, at $30 per share

October 1, 2013, 25,000 warrants
issued at $6 each

Non-compensatory stock purchase
warrants, Series B

Each warrant is exchangeable with
$40 for 1 common share

April 1, 2014, 20,000 warrants
authorized and issued at $10 each

First mortgage bonds

5 1/2 % due 2023, nonconvertible,
priced to yield 5% when issued.

Balance October 1, 2013–authorized,
issued, and outstanding, the face amount of $1,400,000

Convertible debentures

7% due 2030. Originally, each
$1,000 bond convertible any time before maturity into 20 shares common stock

December 1, 2013, conversion rate
changed to 40 sahres for each bond

October 1, 2013, authorized and
issued at par of $2,400,000

Other information

Average price for year ended 9-30-2014

Common stock

37.50

First mortgage bonds
87.00

Convertible debentures
115.00

Series A warrants

15.00

Series B warrants

9.50

Where applicable, prices are
adjusted for the stock split.

 

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