bStainless Corporation had net income of $7,800,000 om 2015. The company had 500

Question

bStainless Corporation had net income of $7,800,000 om 2015. The company had 500,000 shares of $4 par value common stock and 70,000 shares of 8%, $100 par, preferred stock outstanding trhoughout the year. Each share of preferred stock is both cumulative and convertable. Each share of preferred stock is convertible into two shares of common stock. Compute the following for 2015:

a- The number of shares to be used in computing basic earnings per share

b-    The number of shares to be used in computing diluted EPS

C - Basic earning per share

Explanation / Answer

a) Number of shares to be used in computing basic earnings per share = 500,000

b) 500,000 + (70,000 X 2 ) = 640,000

c) Basic earnings per share:

Net income = 7,800,000

Number of shares = 500,000

Less: Pref. Dividend =   (560,000)

(70,000 X 100 X 8%)

Earnings available to Share holders 7240000

Number of shares 500,000

Earnings per share = 7240000 /500,000 = 14.18 per share

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