During the current year, Green Corp. had the following two classes of stock issu

Question

During the current year, Green Corp. had the following two classes of stock issued and outstanding for the entire year:

100,000 shares of common stock, $1 par.

1,000 shares of 4% preferred stock, $100 par, convertible share for share into common stock.

The preferred stock is cumulative and no preferred dividends are in arrears. Green’s current-year net income was $900,000, and its income tax rate for the year was 30%. Diluted earnings per share for the current year is:

$9.00

$8.96

$8.91

$8.87

I do not know

$9.00

$8.96

$8.91

$8.87

I do not know

Explanation / Answer

Diluted earnings per share = [Profit or loss attributable to common equity holders + Convertible preferred dividend] / [Weighted average number of common shares outstanding during the priod + all dilutive potential common stock] After tax net Income = $900000 - ($900000*30%) = $630000 4% Preferred stock value = 1000 shares * $100 = $100000 Convertible Preferred dividend = $100000 * 4% = $4000 Profit attributable to common equity holders = after tax net income - preferred dividend = $630000 - $4000 = $626000 Weighted average number of common shares outstanding during the priod = 100000 shares All dilutive potential common stock i.e.preferred stock convertible into common stock = 1000 shares Diluted earnings per share = [$626000 + $4000] / [100000 + 1000] = 6.24 The answer is different from the first four options given.

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.