Phoenix Footwear Group, Inc., designs and distributes shoes under the SoftWalk and Trotters brand names. The company

Question:

Phoenix Footwear Group, Inc., designs and distributes shoes under the SoftWalk® and Trotters® brand names. The company made the following announcement in July 2004:

Phoenix Footwear Group, Inc. announced the pricing of its public offering of 2,500,000 shares of common stock at a price of $12.50 per share . . . . The Company plans to use the net offering proceeds to pay a portion of the price for the pending Altama acquisition.

Altama Delta Corporation manufactures high performance tactical and combat boots for the Department of Defense. The acquisition was completed for a price of $39 million soon after the successful common stock offering. Altama is estimated to generate annual net income of $4.5 million for 2004. Prior to the common stock offering, Phoenix had 4,460,000 shares of $0.01 par value common stock issued and outstanding on December 31, 2003. Net income was $941,000 for 2003.

a. Provide the journal entry for the common stock issue in July 2004.

b. Determine the expected (pro forma) earnings per share from the acquisition assuming the acquisition was included in operations for all of 2004 and there were no other changes in operations. Assume the difference in the acquisition price and the common stock proceeds was financed by the proceeds of 6% (after-tax) long-term debt.

c. Is the answer in (b) dilutive to earnings per share?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...