Task: (Computation of Basic and Diluted EPS)
The information on page 826 pertains to Prancer Company for 2004.
Net income for the year $1,200,000
8% convertible bonds issued at par ($1,000 per bond). Each bond is convertible into 40 shares of common stock. 2,000,000
6% convertible, cumulative preferred stock, $100 par value. Each share is convertible into 3 shares of common stock. 3,000,000
Common stock, $10 par value 6,000,000
Common stock options (granted in a prior year) to purchase 50,000 shares of common stock at $20 per share 500,000
Tax rate for 2004 40%
Average market price of common stock $25 per share
There were no changes during 2004 in the number of common shares, preferred shares, or convertible bonds outstanding. There is no treasury stock.
Required to do:
(a) Compute basic earnings per share for 2004.
(b) Compute diluted earnings per share for 2004.