9-10. During 2014, Choco Corporation had 600,000 shares of common stock and 40,0
ID: 2446102 • Letter: 9
Question
9-10. During 2014, Choco Corporation had 600,000 shares of common stock and 40,000 shares of 2% preferred stock outstanding. The preferred stock does not have cumulative or convertible features. Choco declared and paid cash dividends of $70,000 and $240,000 to common and preferred shareholders, respectively, during 2014. On January 1, 2013, Choco issued $2,000,000 of convertible 3% bonds at face value. Each $1,000 bond is convertible into five common shares. Chocos net income for the year ended December 31, 2014, was $6,000,000. The income tax rate is 40%. 10. What will Choco report as diluted earnings per share for 2014, rounded to the nearest cent?Explanation / Answer
Q9)
Basic EPS = Earning Available for Common Stock Holder/ Weighted Average no of common stock outstanding
Earning Available for Common Stock Holder = Net Income - Prefered Stock Dividend
Earning Available for Common Stock Holder = 6000000-240000
Earning Available for Common Stock Holder = $ 5,760,000
Weighted Average no of common stock outstanding = 600000
Basic EPS = 5760000/600000
Basic EPS = $ 9.60
Answer
$ 9.60
Q10)
Dilued EPS = (Earning Available for Common Stock Holder+ Convertible prefered stock Dividend + Convertible Bond interest after tax)/ (Weighted Average no of common stock outstanding + No of convertible bond would increase share)
Dilued EPS = (5760000+0 + 2000000*3%*(1-40%))/(600000+ 2000000/1000*5)
Dilued EPS = $ 9.50
Answer
D) $ 9.50
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