During 2011, Angel Corporation had 900,000 shares of common stock and 50,000 sha

Question

During 2011, Angel Corporation had 900,000 shares of common stock and 50,000 shares of 6% preferred stock outstanding. The preferred stock does not have cummulatove or convertible features. Angel declared and paid cash dividends of $ 300,000 and $ 150,000 to common and preferred shareholders, respectively, during 2011.

On January 1, 2010, Angel issued $2,000,000 of convertible 5% bonds at face value. Each $ 1,000 bond is convertiible into 5 common shares.

Ange's net income for the year ended December 31, 2011 was $ 6 million. The income tax rate is 20%

a) What is Ange's basic earning per share for 2011, rounded to the nearest cent?

b) What will Angel report as diluted earning per share for 2011, rounded to the nearest cent?

Explanation / Answer

Answer:a) Calculation of the basic earning per share

BEPS=(Net income -Preference dividend)/Number of equity shares outstanding

=($6000,000-$150000)/900000 shares

=$6.50 per share

Answer:b) Calculation of the DEPS:

=($6000,000-$150000-$100000)/(900000 shares+(2000000/1000)*5 )

=$5750000/910000 shares

=$6.32 per share

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