Question

Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000...

Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 6% convertible bonds outstanding during 2015. The preferred stock is convertible into 40,000 shares of common stock. During 2015, Hanson paid dividends of $.60 per share on the common stock and $1.50 per share on the preferred stock. Each $1,000 bond is convertible into 40 shares of common stock. The net income for 2015 was $400,000 and the income tax rate was 30%.

4.         Basic earnings per share for 2015 is (rounded to the nearest penny)

a.   $1.57.

b.   $1.71.

c.   $1.80.

d.   $1.85.

5.         Diluted earnings per share for 2015 is (rounded to the nearest penny)

a.   $1.41.

b.   $1.49.

c.   $1.53.

d.   $1.58.

Business   Accounting   
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Homework Answers

Answer #1
Computation of Basic EPS and Diluted EPS
BASIC EPS DILUTED EPS
NET INCOME 400,000 400,000
LESS: Preference Dividend 1.5* 20,000 = 30,000
ADD: After Tax Cost of Debt 1,000,000*6%*(1-30%) = 42,000
Earrings Available (A) 370,000 442,000
Weighted Common Stock 200,000 200,000
Weighted Additional stock if preference shares are converted 40,000
Weighted additional stock if debt is converted 1,000,000/1000 *40 = 40,000
Total Weighted shares (B) 200,000 280,000
EPS (A/B) 1.85 1.58

So,

4. D is correct.

5. D is correct.

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