Problem 19-14 EPS; convertible preferred stock; convertible bonds; order of entr

Question

Problem 19-14 EPS; convertible preferred stock; convertible bonds; order of entry [LO19-7, 19-9, 19-10]

Information from the financial statements of Henderson-Niles Industries included the following at December 31, 2018:

Henderson-Niles’s net income for the year ended December 31, 2018, is $960 million. The income tax rate is 40%. Henderson-Niles paid dividends of $3 per share on its preferred stock during 2018.

Required:
Compute basic and diluted earnings per share for the year ended December 31, 2018. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

Common shares outstanding throughout the year 100 million Convertible preferred shares (convertible into 36 million shares of common) 75 million Convertible 10% bonds (convertible into 23.0 million shares of common) $ 2,800 million

Explanation / Answer

Net Income before tax = 960

Taxes = 960 x 40% = 384

Net Income after Tax = 576

Preference Dividend = 75 x 3 = 225

Net Income available to common shareholders = 576 - 225 = 351 million

Basic earnings per share = 351/100 = 3.51 per share

Diluted Earnings :

Total shares = Common shares + Convertible shares out of preference shares and bonds = 100 + 36 + 23 = 159

Diluted earnings per share = 351/159 = 2.21 per share

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