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Weighted average shares, as reported
|
20,000
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Additional shares for debt being extinguished – January 1 issuance
$25,000 (amount of debt to be extinguished) / $10 (per share stock price) = 2,500 shares
The entire 2,500 shares are included in the calculation because the debt was outstanding for the entire fiscal year.
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2,500
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Additional shares for debt being extinguished – July 1 issuance
$25,000 (amount of debt to be extinguished) / $10 (per share stock price) = 2,500 shares
The 2,500 shares are weighted based on the period for which the debt was outstanding as follows: 2,500 shares x 6/12 (debt was outstanding for half the year) = 1,250 shares
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1,250
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Weighted average shares, as adjusted
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23,750
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Net income, as reported
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$100,000
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Add back: Interest expense for the year related to debt to be extinguished, net of tax effects
$3,750 minus tax effects of $1,125 ($3,750 x 30% tax rate) = $2,625
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$2,625
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Net income, as adjusted
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$102,625
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Net income, as adjusted
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$102,625
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Weighted average shares, as adjusted
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23,750
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Pro forma EPS – basic
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$4.32
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