Question

The information below pertains to Blue Company for 2018. $1,140,000 1,900,000 Net income for the year 6% convertible bonds issued at par ($1,000 per bond); each bond is convertible into 20 shares of common stock 6% convertible, cumulative preferred stock, $100 par value; each share is convertible into 5 shares of common stock Tax rate for 2018 Average market price of common stock 3,870,000 40% $25 per share There were 570,000 shares of shares of common stock outstanding on 1/1/2018. On April 1, 2018, the company issued 40,000 common shares. There were no changes in the number of preferred shares, or convertible bonds outstanding. There was no treasury stock. The company also has common stock options (granted in a prior year) to purchase 70,500 shares of common stock at $20 per share. Required: 1. Compute basic earings per share for 2018. 2. Compute diluted earnings per share for 2018.

Answer 1

. Sdutiunt + © Basic earnings.per Share for 2018. Basic EPS = Net income - preferred dividends weighted average common shares - Outstanding Net income = 110oooo · preferred dividends : 3870000*6% 232200 weighted average.common shares outstanding 570000 + 40000 = 610 Oud Shaves. Basic Epi 140 000 –232900 .: 610 Ovo = $ 1.48 A Shanes.

3 Diluted earning oper share for 2018. Diluted cps. Net income preferred dividend Arg shares & pitated shares.. out standing & pilated income luoood Net preffered dividend - 232200 Ang shaves out standing = "610000 Diluted shares of 1900000 *), 6% convertable bonds. 1000 1900 bonds each convertable into zo shares E 1900X20 38000 Shares (6'). Convertible Cateri preffered stats 38 20000 338760 160. 1. each convestable into 5 shares S us 3870015 = 193500 shares Cilly the common stock options to purchase 7050o

Diluted shares - 38000 + 193500 + 70500 Ź 302000 shares Diluted EPS = 1140000 - 232 200 610000 + 302000 3 ότ8υ 412000 .. . 3 0.995 shares