At January 1, 2016, Canaday Corporation had outstanding the following securities

Question

At January 1, 2016, Canaday Corporation had outstanding the following securities: 730 million common shares 50 million 5% cumulative preferred shares, $50 par 6% convertible bonds, $2,000 million face amount, convertible into 60 million common shares The following additional information is available: • On September 1, 2016, Canaday sold 84 million additional shares of common stock. • Incentive stock options to purchase 50 million shares of common stock after July 1, 2015, at $10 per share were outstanding at the beginning and end of 2016. The average market price of Canaday’s common stock was $25 per share during 2016. • Canaday's net income for the year ended December 31, 2016, was $1,528 million. The effective income tax rate was 40%. Required: 1. & 2. Calculate basic and diluted earnings per common share for the year ended December 31, 2016.

Explanation / Answer

(1) Basic EPS = net income - preferred Dividend / number of outstanding common shares

=( $1528 - $125 million) / (730 - 84 + 50 )million shares

=$1403 million / 696 million shares

= $2.016 per share

Note:- Face value of preferred stock = 50 million * $50 par value   

= $2500 million

Dividend = $2500 million * 5%

= $125 million

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