Net income (30% tax rate) $3,000,000
Average common shares outstanding 2013 1,000,000 shares
10% cumulative convertible preferred stock:
Convertible into 80,000 shares of common $1,600,000
8% convertible bonds; convertible into 75,000
shares of common $2,500,000
Stock options:
Exercisable at the option price of $25 per share;
average market price in 2013, $30 84,000 shares
Instructions
Compute (a) basic earnings per share, and (b) diluted earnings per share.
SOLUTION
$3,300,000 - $160,000
(a) Basic EPS = 3,300,00-160,000/1,500,00 = $2.09 WHERE DID THE $3,300,000 COME FROM?