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On January 1, 2018, Edward Corporation had 12,000 shares of $4 par value common stock and...

On January 1, 2018, Edward Corporation had 12,000 shares of $4 par value common stock and 12,000 shares of 5%, $100 par value convertible preferred stock outstanding. The preferred shares carried a 3-for-1 conversion privilege. On October 1, 2018, all of the preferred shares were converted to common. What number of shares must Edward use in computing basic earnings per share at December 31, 2018?

  • 9,000.

  • 21,000.

  • 48,000.

  • 12,000.

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Answer #1

Answer :21000

Basic EPS = (Net income - Preferred Dividend) / Weighted-average no of shares outstanding

So for computing Basic EPS Weighted-average of number of of shares outstanding is used. It is calculated as follows :

Preferred stock converted to common shares = 12000x3= 36000

Weighted-average number of shares outstanding :

=old Common stock outstanding throughout the year + (Converted common stock *3/12)

=12000+(36000*3/12)

=12000+9000

=21000

From 1ST october to December 31st, there are 3 months. From the date of conversion ie, from 1ST october the converted common stock has been outstanding for 3 months.

ANY DOUBTS OR CORRECTIONS?

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