In case of preference shares, you would have to consider the profit before preference dividend, since the same would also be available for distribution in case the preference shares were converted.
Thus numerator should be Net income + Preference dividend = 479,400 + (1,020,000 x 6%) = $540,600.
Potential equity shares = 10,200 x 5 common stock each = 51,000.
Denominator should be Shares Outstanding Plus potential shares = 102,000 + 51,000 = 153,000
Thus Diluted EPS = 540,600/153,000 = $ 3.53.
b) Basic earning per share = (479400-61200)/102000 = 4.10
Diluted earning per share = Adjusted net income/Adjusted shares
= 479400/(51000+102000)
Diluted earning per share = 3.13
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