Question

Problem 19-187 Paul Company had 100,000 shares of common stock outstanding on January 1, 2018. On September 30, 2018, Paul sold 55,000 shares of common stock for cash. Paul also had 13,500 shares of convertible preferred stock outstanding throughout 2018. The preferred stock is $100 par, 7%, and is convertible Into 3 shares of common for each share of preferred. Paul also had 570,9%, convertible bonds outstanding throughout 2018. Each $1,000 bond is convertible Into 30 shares of common stock. The bonds sold originally at face value. Reported net Income for 2018 was $370,000 with a 40% tax rate. Common shareholders received $2.70 per share dividends after preferred dividends were paid in 2018. Required: Compute basic and diluted earnings per share for 2018. (Round your answers to 2 decimal places.) Earning per share Basic Diluted $ $ 2.42 2.34

Answer 1

Basic EPS (A/B) $ 2.42 Diluted EPS (A/B) 2.34 EPS = Net income attributable to common stock holders / weighted avg outstanding common shares reported Net Income 370,000 (94,500) less: preferred stock stock dividend ( 13500 x 100 x7%) Net income attributable to common stock holders A GA 275,500 100,000 weighted avg outstanding common shares January 1 to December 31 ( 12 months) September 30 to December 31 ( 3 months) weighted avg outstanding common shares 100,000 x 12/12 55,000 x 3/12 13,750 B wel 113,750 Basic EPS (A/B) 2.42

Diluted EPS = Net income attributable to common stock holders /weighted avg outstanding common sharestpotensial shares 370,000 30,780 net income ADD interest expense on bond after tax ( 570 x 1000 x 9% x 60%) Net income after adjustments 400,780 113,750 weighted avg outstanding common shares Potential shares Convertibel preferred stock ( 13,500 x 3) Convertible bonds ( 570x 30) weighted avg outstanding common shares + potensial shares 40500 17100 171,350 2.34 Diluted EPS (A/B) Please comment if you have any doubt Please give thumps up if you are satisfied with the answer