Question

Please help.

Information from the financial statements of Ames Fabricators, Inc., included the following: December 31 2018 2017 100,000 100,000 Common shares Convertible preferred shares (convertible into 42,000 shares of common) 10% convertible bonds (convertible into 20,000 shares of common) 18,000 18,000 $1,000,000 $1,000,000 Ames's net income for the year ended December 31, 2018, is $600,000. The income tax rate is 40%. Ames paid dividends of $5 per share on its preferred stock during 2018. Required: Compute basic and diluted earnings per share for the year ended December 31, 2018. (Enter your answers in thousands.) Numerator Denominator = Earnings per Share Basic EPS Diluted EPS

Answer 1

(amounts in thousands, except per share amounts)
					Earnings per Share
Basic EPS	$     600.00	/	$                          100.00	=	$                             5.00	per share
Diluted EPS	$     660.00	/	$                          162.00	=	$                             4.07	per share
Explanation
(amounts in thousands, except per share amounts)
Basic EPS
	(Net income	-	Preferred stock Dividends)	/	Common shares	= EPS
	600	-	100	/	100.00	$                     5.00
Diluted EPS
	(Net income	-	Preferred stock Dividends	+	Preferred stock Dividends	+ Interest Expenses)	/	Common shares	=	Diluted EPS
	600	-	100	+	100.00	60	/	(100+42+20)	=	$        4.07
Interest expense = 1,000 x 10% x (1-0.40) = $60