McWade Company has 36,000 shares of common stock outstanding at the beginning of 2014. McWade issued 4,500 additional shares on May 1 and 3,000 additional shares on September 30. It also has two convertible securities outstanding at the end of 2014. These are:
a) Convertible preferred stock: 2,500 shares of 8.5%, $50 par, preferred stock were issued on January 2, 2011, for $60 per share. Each share of preferred stock is convertible into 3 shares of common stock. Current dividends have been declared and paid. To date, no preferred stock has been converted.
b) Convertible bonds: Bonds with a face value of $500,000 and an interest rate of 7.5% were issued at par in 2012. Each $1,000 bond is convertible into 20 shares of common stock. To date, no bonds have been converted.
McWade earned net income of $145,000 during 2014. The income tax rate is 30%.
Required:
1. Compute the number of shares of common stock that McWade should use in calculating basic earnings per share for 2013.
2. Calculate basic earnings per share for 2013.
3. Calculate diluted earnings per share for 2013 and the incremental EPS of the preferred stock and convertible bonds.
4. Assume the same facts as above except that net income included a loss from discontinued operations of $27,000 net of income taxes. Compute basic EPS and show how it should be reported to shareholders. Do not calculated diluted EPS for this case.