Question

Sheridan Company had 206000 shares of common stock, 20000 shares of convertible preferred stock, and $598000...

Sheridan Company had 206000 shares of common stock, 20000 shares of convertible preferred stock, and $598000 of 12% convertible bonds outstanding during 2021. The preferred stock is convertible into 39000 shares of common stock. During 2021, Sheridan paid dividends of $0.56 per share on the common stock and $1.80 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2021 was $366000 and the income tax rate was 25%. Diluted earnings per share for 2021 is (rounded to the nearest penny)

$1.54.

$1.29.

$1.56.

$1.33.

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Answer #1

Ans:

Calculation of Diluted earnings per share:

Diluted earning per share :

Net earning available for common stock after all conversion / Common stock after all conversion are exercised:

Net Income : $366,000

After tax saving if Debts converted into stock : ($598,000*12%)*(1-Tax)

= $71,760*75% = $53,820

Net earning available for common stock after all conversion : $366,000 + 53,820 = $419,820

Common Stock Outstanding : 206,000

Convertible preferred stock : 39,000

Covertible bonds into stock : (598,000/1,000)*45 : 26,910

Common stock after all conversion are exercised : 206,000 + 39,000 + 26,910 = 271,910

Diluted EPS : $419,820/271,910 = $1.54

So correct answer is option A.

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