Paul Company had 100,000 shares of common stock outstanding on January 1, 2016.
ID: 2596404 • Letter: P
Question
Paul Company had 100,000 shares of common stock outstanding on January 1, 2016. On September 30, 2016, Paul sold 46,000 shares of common stock for cash. Paul also had 9,000 shares of convertible preferred stock outstanding throughout 2016. The preferred stock is $100 par, 6%, and is convertible into 3 shares of common for each share of preferred. Paul also had 480, 7%, convertible bonds outstanding throughout 2016. Each $1,000 bond is convertible into 30 shares of common stock. The bonds sold originally at face value. Reported net income for 2016 was $280,000 with a 40% tax rate. Common shareholders received $1.80 per share dividends after preferred dividends were paid in 2016.
Compute basic and diluted earnings per share for 2016. (Round your answers to 2 decimal places.)
Paul Company had 100,000 shares of common stock outstanding on January 1, 2016. On September 30, 2016, Paul sold 46,000 shares of common stock for cash. Paul also had 9,000 shares of convertible preferred stock outstanding throughout 2016. The preferred stock is $100 par, 6%, and is convertible into 3 shares of common for each share of preferred. Paul also had 480, 7%, convertible bonds outstanding throughout 2016. Each $1,000 bond is convertible into 30 shares of common stock. The bonds sold originally at face value. Reported net income for 2016 was $280,000 with a 40% tax rate. Common shareholders received $1.80 per share dividends after preferred dividends were paid in 2016.
Explanation / Answer
Answer:
1
Basic EPS calculation
Basic EPS
=(280,000-(6%*100*9000)) / (100,000+(46000*3/12))
=226,000 /111,500
=2.03 EPS
So basic EPS =$2.03
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2
Diluted EPS calculation
Diluted EPS
=(280,000+(7%*480,000*60%)) / (100,000+(46000*3/12)+(9000*3)+(480*30))
=300,160 /152,900
=$1.96 EPS
So Diluted EPS =$1.96