The Shareholders' Equity section of Holiday Roads Company's balance sheet shows:
31/12/2010 31/12/2011
Preferred dividend, $200 par value, 5% dividend,
20,000 shares issued and outstanding $4,000,000 $4,000,000
Common stock, $2 par value $400,000 $520,000
Paid-in capital in excess of par $19,600,000 $26,800,000
Retained earnings $3,000,000 $4,000,000
Total stockholders' equity $27,000,000 $35,320,000
Net income for 2011 was $1,700,000, preferred stock dividends were $200,000, and common stock dividends were $500,000. The company issued 60,000 shares of common stock on July 1, 2011.
Problem 1. What is the company's basic EPS for 2011?
Problem 2. Suppose that Holiday Roads also had $500,000 of 10% convertible subordinated debentures outstanding at the beginning and end of 2011. Each $1,000 bond is convertible into 100 shares of common stock, and the company's income tax rate is 34%. What is the company's diluted EPS for 2011?
Problem 3. What other types of securities in addition to convertible debt can affect the calculation of diluted EPS?