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Exercise 19-21 (Algo) EPS; convertible preferred stock; convertible bonds; order of entry [LO19-7, 19-9] Information from...

Exercise 19-21 (Algo) EPS; convertible preferred stock; convertible bonds; order of entry [LO19-7, 19-9] Information from the financial statements of Ames Fabricators, Inc., included the following: December 31 2021 2020 Common shares 100,000 100,000 Convertible preferred shares (convertible into 82,000 shares of common) 32,400 32,400 8% convertible bonds (convertible into 30,000 shares of common) $ 1,000,000 $ 1,000,000 Ames’s net income for the year ended December 31, 2021, is $840,000. The income tax rate is 25%. Ames paid dividends of $5 per share on its preferred stock during 2021. Required: Compute basic and diluted earnings per share for the year ended December 31, 2021. (Enter your answers in thousands (For example, 100,000 should be entered as 100). Do not round intermediate calculations.)

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Answer #1

Answer:

Net Income 840000
Less: Preferrence Dividend (32400*5) 162000
Earning to common shareholders 678000
Number of common shares 100000
Basic Earnings per share $6.78
Earnings to common shareholders 678000
Add: Preference shares (32400*5) 162000
Interest on bond (net of tax) (1000000*0.08)*0.75 60000
Adjusted earnings 900000
Total Number of shares 212000
Diluted Earnings per share 4.25

Working Notes:

Common shares 100000
Convertible preference shares 82000
Convertible bonds 30000
Total shares for Diluted EPS 212000

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