Question

The information below pertains to Coronado Company for 2021. $1,140,000 2,010,000 Net income for the year 6% convertible bonds issued at par ($1,000 per bond); each bond is convertible into 30 shares of common stock 6% convertible, cumulative preferred stock, $100 par value; each share is convertible into 3 shares of common stock Common stock, $10 par value Tax rate for 2021 Average market price of common stock 3,820,000 5,820,000 20% $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 77,900 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 7 1 .56) (b) Compute diluted earnings per share for 2021. (Round answer to 2 decimal places, e.g. $2.55.) Diluted earnings per share = 1.56

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Answer 1

the answer has been presented in the supporting sheet. All the parts has been solved with detailed explanaton and format. For detailed answer refer to the supporting sheet.

A B D E F G H I C Answer Part 1) = (net income - preference dividend) / common shares outstanding = (1140000 - (3820000*6%))/(5820000/10) = (1140000-229200)/582000 = $ 1.56 Thus the correct answer is $ 1.56 Part 2) 1 Diluted earning per share = (net income +bond interest after tax) / common shares outstanding+shares from conversion of 2 bonds + shares from conversion of preferance shares+shares from stock options) B = (1140000 +(2010000*6%*80%))/((5820000/10)+(2010000/1000*30)+(3820000/100*3)+15580) 4 = ( 1140000+96480)/(582000+60300+114600+15580) 5 = 1236480/772480 5 = $ 1.6 7 Thus the correct answer is $ 1.59 Notes shares from convesion from stock option considered for diluted earning per share 1 = (market price - excerise price)/ market price)*stock options 2 = ((25-20)/25)*77900