At December 31, 2019, St. John's Limited had 4,000,000 common shares outstanding (no preferred shares issued). An additional 250,000 common shares were issued on July 1, 2020, and 500,000 more on October 1, 2020. As well, on April 1, 2020, St. John's issued 10,000, $ 1,000 face value, 8% convertible bonds. Each bond is convertible into 40 common shares. No bonds were converted in 2020. What is the number of shares to be used in calculating basic earnings per share and diluted earnings per share, respectively, for 2020?

Question

Quizplus · Accepted Answer

For basic EPS, the weighted average number of shares is calculated. From January 1 to June 30, there are 4,000,000 shares. From July 1 to September 30, an additional 250,000 shares were issued, making it 4,250,000 shares. From October 1 to December 31, another 500,000 shares were issued, making it 4,750,000 shares. The weighted average is calculated as follows: (6/12 * 4,000,000) + (3/12 * 4,250,000) + (3/12 * 4,750,000) = 2,000,000 + 1,062,500 + 1,187,500 = 4,250,000 shares for basic EPS. For diluted EPS, the convertible bonds that can be converted into shares are considered. 10,000 bonds can be converted into 400,000 shares (10,000 * 40). Therefore, the diluted shares are 4,250,000 + 400,000 = 4,650,000 shares.