Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible pref

Question

Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 7.5% convertible bonds outstanding during 2013. The preferred stock is convertible into 40,000 shares of common stock. During 2013, Hanson paid dividends of $.90 per share on the common stock and $3 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2013 was $600,000 and the income tax rate was 30%

nstruction: Calculate the basic EPS and diluted EPS.

Explanation / Answer

Calculation of Earning Per Share Amount Net Income after Tax                600,000 Less: Preference Dividend (20000 Shares X $3)                (60,000) Profit Available For Equity Shareholders (A)                540,000 No. Of Equity Shares Outstanding (B)                200,000 Earning Per Share (A/B)                       2.70 Calculation of Diluted Earning Per Share Amount Profit Available For Equity Shareholders (A)                540,000 Add: Dividend Paid to Con. Preference Shares                  60,000 Add: Interest paid on Convertible Bonds After Tax                  52,500 (1,000,000 X 7.5%) X (1 - 30%) Adjuted Profit ©                652,500 No. oF Equity Shares                200,000 No. oF Convt. Pref. Shares Converted into Equity Shares                  40,000 No. oF Convt. Bonds Converted into Equity Shares ($1,000,000/$1000 X 45 Shares)                  45,000 Total No. of Shares (D)                285,000 Diluted Earnings Per Share (C/D)                       2.29

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