The information below pertains to Bonita 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 |
$ |
Ans:
Net income = $1190000 |
||
Dividend on preference shares = 4000000*6%= |
240000 |
|
Number of common stock outstanding = 6280000/10=628000 |
||
a Basic EPS = Net income-Preference Dividend/Common stock outstanding |
||
=(1190000-240000)/628000= $1.51 (rounded off) |
Net Income |
1,190,000 |
DILUTED EPS |
|
Interest on convertible bonds (1970,000*7%) |
137900 |
After Tax amount(1-20%) |
110320 |
Number of bonds |
1970 |
Number of equivalent common shares @30 Anti dilution |
59100 |
Stock Options |
68800 |
Price |
20 |
Value of Stock Options |
1376000 |
Divided by Average Market price |
25 |
Number of common stock |
55040 |
Incremental shares |
13760 |
Preference Shares |
40000 |
Preference dividend |
240,000 |
Number of Equivalent common shares@3 |
120000 |
Anti dilution |
2 |
Numerator for Diluted EPS (Net Income- Preferred Dividend+Interest savings+ Preferred Dividend) |
|
(1190,000+240000-240000+110320) |
1,300,320 |
Total number of shares outstanding |
820860 |
(628000+13760+59100+120000) |
|
Diluted EPS |
1.58 |
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