During 2020, Churchill had the following convertible securities outstanding: $200,000 of 6% convertible bonds. EAch $1000...
During 2020, Churchill had the following convertible securities outstanding:
$200,000 of 6% convertible bonds. EAch $1000 bond is convertible into 30 shares of common stock
$100,000 of 10%, $50 par, cumulative preferred stock. Each share is convertible into 4 shares of common stock.
Churchill has an income tax rate of 30%. It's reported net income for 2020 was $210,000 and it had 26,000 shares of common stock outstanding all year.
Calculate basic and diluted earnings per share for Churchill.
Please show computations and reasoning.
Homework Answers
Basic Earnings per Share = Earnings for Equity/Number of outstanding equity shares
= 210,000/26,000
= $8.077/share
Diluted:
Net Income = 210,000
Add: Interest saved on bonds net of tax = 200,000*6%(1-0.7) = 8,400
Add: Preferred Stock Dividend = 100,000*10% = 10,000
Diluted Net Income = $228,400
Diluted number of shares:
Outstanding Shares = 26,000
Convertible Bonds = 200,000*30/1000 = 6,000
Convertible Preferred Shares = 100,000*4/50 = 8,000
Diluted Number of shares = 40,000
Diluted Earnings per share = 228,400/40,000
= $5.71/share
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