The information below pertains to Windsor Company for
2021.
Net income for the year | $1,190,000 | |
7% convertible bonds issued at par ($1,000 per bond); each bond
is convertible into 30 shares of common stock |
1,970,000 | |
6% convertible, cumulative preferred stock, $100 par value;
each share is convertible into 3 shares of common stock |
4,000,000 | |
Common stock, $10 par value | 6,280,000 | |
Tax rate for 2021 | 20% | |
Average market price of common stock | $25 per share |
There were no changes during 2021 in the number of common shares,
preferred shares, or convertible bonds outstanding. There is no
treasury stock. The company also has common stock options (granted
in a prior year) to purchase 68,800 shares of common stock at $20
per share.
(a) Compute basic earnings per share for 2021.
(Round answer to 2 decimal places, e.g.
$2.55.)
Basic earnings per share |
$ |
(b) Compute diluted earnings per share for 2021.
(Round answer to 2 decimal places, e.g.
$2.55.)
Diluted earnings per share |
$ |
Answer:
a.
Calculation of basic earnings per share for 2021 in the following way:
Particulars | Amount | Amount |
Basic earnings per share |
=(Net income - preferred dividend)/common share outstanding = ($1,190,000 - $4,000,000*6%) / ($6,280,000/10) = ($ 9,50,000 ) / ($ 6,28,000) = $ 1.512 per share (approx) |
$ 1.512 per share |
====================================================================
b.
Calculation of diluted earning's per share for 2021 in the following way:
Particulars | Amount | Amount |
Diluted earning's per share |
= (Net income - preferred dividend + interest saving net of tax)/(Average common share + potential diluted common share) = ($1,190,000 - $4,000,000*6% + $1,970,000*6%(1-0.8)) / ($6,280,000/10 + $1,970,000*30/1000 + (25-20)* 68,800 /25) = ($ 9,50,000 + $23,640) / ($ 6,28,000 + $ 59,100 + $ 13,760) = ( $ 9,73,640 )/($ 7,00,860) = $ 1.389 per share (approx) |
$1.389 per share |
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