Question

Skysong Inc. had net income for the current year ending December 31, 2017 of $1,076,730. During the entire year, there were 509,000 common shares outstanding. The company had two classes of preferred shares outstanding: the Class A preferred shares were $2.31 cumulative shares of which 10,000 were outstanding, and were convertible to common shares at a rate of 1:1. There were 108,000 $6.31 Class B non-cumulative preferred shares outstanding that were also convertible at a rate of 1:1. Skysong had outstanding a $1,000,000, 7% bond issued in 2009 that was convertible to 21,000 common shares. The company also had outstanding a $1,000,000, 6% bond issued in 2010 that was convertible to 25,000 common shares. No dividends were declared or paid this year. Skysong’s tax rate is 39%.

1. Calculate basic earnings per share. (For simplicity, ignore the requirement to record the debt and equity portions of the convertible bond separately.) (Round answer to 2 decimal places, e.g. 15.25.)

2. Calculate diluted earnings per share. (For simplicity, ignore the requirement to record the debt and equity portions of the convertible bond separately.) (Round calculations of EPS to 3 decimal places, e.g. $3.545 and provide final answer to 2 decimal places, e.g. 15.25.)

Answer 1

Basic Earnings per share	$2.12
diluted earnings per share	$1.60

Working:

Net Income	1076730
Number of common shares outstanding	509000
Basic earnings per per share	$2.12
	Number of common shares
Number of common shares outstanding	509000
Class A preferred convertible shares	10000
Class B preferred convertible shares	108000
7% convertibel bonds	21000
6% convertible bonds	25000
Total number of shares	673000
Net income	1076730
Diluted Earnings per share	$1.60