Response to the following problem:
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?