Question

Accounting 3021-Fall 2020 Homework 4 Due Date: September 16, 2020. + Information for Legoria Co: 12/31/2020 12/31/2019 Common shares Outstanding 100,000 100,000 Convertible preferred stock [$10 Par $120,000 $120,000 Value per share; convertible into 32,000 shares of common stock] 10% Convertible bonds (convertible into 30,000 shares of common stock) $1.000.000 $1,000,000 Legoria's net income for the year ended 12/31/20 is $600,000. The income tax rate is 20%. The preferred stock is cumulative and pays dividends of $8 per share. However, no preferred dividends were paid on the preferred stock during 2020. There were no actual conversions of preferred stock or bonds during the year. Both the Convertible Preferred stock and Convertible Bonds were issued at Par Value. Required: Compute Basic and Diluted EPS for the year ended 12/31/2020. Basic earnings per share:

Answer 1

1. Basic Earnings Per Share = (Net Income - Preferred Dividends) $\div$ Number of common shares outstanding

Net Income for the year 12/31/2020 = $600000

There is no dividends for Preferrence shares

Number of common shares outstanding = 100000

Basic EPS for the year ended 12/31/2020 = 600000 $\div$ 100000 = $6 per share

2. Diluted Earnings Per Share = (Net Income - Preferred Dividends) $\div$ Diluted Weighted Average Number of common shares outstanding  

EPS for the year ended 12/31/2020 = 600000 $\div$ (100000 + 32000 + 30000) = $3.7 per share