4. During 2016, Jackson Corporation had 600,000 shares of common stock and 50,00

Question

4. During 2016, Jackson Corporation had 600,000 shares of common stock and 50,000 shares of 9% preferred stock outstanding. The preferred stock does not have cumulative or convertible features. Jackson declared and paid cash dividends of S200,000 and S100,000 to common and preferred shareholders, respectively, during 2016 On January 1, 2015, Jackson issued $3,000,000 of convertible 5% bonds at face value. Each $1,000 bond is convertible into five common shares Jackson's net income for the year ended December 31, 2016, was $4 million. The income tax rate is 15%. Instructions (a) What is Jackson's basic earnings per share for 2016, rounded to the nearest cent? Show the necessary calculation. (5 points) b) What will Jackson report as diluted earnings per share for 2016, rounded to the nearest cent? (5 points)

Explanation / Answer

a) Basic earning per share = (Net income-Preferred dividend)/Common stock outstanding

= (4000000-100000)/600000

Basic earning per share = 6.50 per share

b) Diluted earning per share = Adjusted net income/Adjusted diluted share

= (4000000-100000+3000000*5%*85%)/(600000+3000000*5/1000)

Diluted earning per share = 6.55 per share

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