Homework SourseThe information below pertains to Marigold Company for 2018
The information below pertains to Marigold Company for 2018.
There were no changes during 2018 in the number of common shares, preferred shares, or convertible bonds outstanding. There is no treasury stock. The company also has common stock options (granted in a prior year) to purchase 77,900 shares of common stock at $20 per share.
(a) Compute basic earnings per share for 2018
(b) Compute diluted earnings per share for 2018.
| Net income for the year | $1,140,000 | |
| 6% convertible bonds issued at par ($1,000 per bond); each bond is convertible into 30 shares of common stock | 2,010,000 | |
| 6% convertible, cumulative preferred stock, $100 par value; each share is convertible into 3 shares of common stock | 3,820,000 | |
| Common stock, $10 par value | 5,820,000 | |
| Tax rate for 2018 | 40% | |
| Average market price of common stock | $25 per share |
Solution
(a) BASIC EARNING PER SHARE = EARNING ATTRIBULABLE DIVIDE BY WEIGHTED AVERAGE OF OUTSTANDING SHARES
Therefore, BEPS = 684000/582000
= 1.18
(b) DILUTED EARNING PER SHARE
= Earning from basic +- effect of ditued POS divide by Weighted avg. From basic +- effect of dilutive POS
Therefore, DEPS = 684000 + 0 / 582000 + 77900
= 1.04
