Question

Tung Pet Food Suppliers reported$7,200,000 net income for the current year. The company indicated that it...

Tung Pet Food Suppliers reported$7,200,000 net income for the current year. The company indicated that it has $6,700,000​, 6%convertible debt issued at par and $500,000 par​ value, 5​% nonconvertible, cumulative preferred shares outstanding. The firm did not declare dividends for the current year. It issued the bonds on May 31 and the preferred shares were outstanding for the entire year. Based on this​ information, determine the numerator of the earnings per share fraction for both basic earnings per share and diluted earnings per share. Assume that all financial instruments described above are dilutive. The tax rate is 45​%.

The numerator of the earnings per share fraction for the basic earnings per share is $ ?

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Answer #1

numerator of basic EPS:

Net income 72,00,000
Less preferred dividends =500000*5% = 25000
Earnings available to equity shareholders = 71,75,000

Numerator of diluted EPS:

Net income 72,00,000
Less preferred dividends =500000*5% = 25000
Earnings available to equity shareholders = 71,75,000
Add after tax interest paid to debt holders =6700000*6%*7/12* 55% = 128975
Earnings available to equity shareholders = 73,03,975
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