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Problem 16-8 The information below pertains to Sheridan Company for 2018 Net income for the year $1,190,000 7% convertible bo

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Answer #1
a. Computation of Earning per share
Computation of Earning Available for Common Stockholder
Net Income $1,190,000
Less: Preferred Dividend (40,00,000 x 6%) ($240,000)
Earning available for common shareholders $950,000
Number of shares outstanding ( 6280000/$10) 628000
Earning per Share= Earning available for Common Shareholder/ No. of shares outstanding
EPS =$950000/628000 shares= $1.51 per Share
b. Computation diluted Earning per share
Computation of Adjusted Net Income
Net Income $1,190,000
Less: Preferred Dividend (40,00,000 x 6%) ($240,000)
Interest savings (net of tax) (1970,000 x 7% x (1-40%)) ($82,740)
Adjusted Net Income $867,260
Computation ofAdjusted Outstanding shares
Average common shares               628,000
Number of shares under warrant ($25 -$20)/$25 ) x 68,800 shares                  13,760
Number of Common shares to be issued in lieu of conversion of bonds    ($1970,000 /$1,000) X 30 shares/bond                  59,100
Total Shares Outstanding               700,860
Diluted EPS= Adjuested Net Income/ Adjusted Outstnading Shares
=867260/700860=$1.24per share
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