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    Basic / Diluted EPS

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    Assume that the following data relate to Bear Creek, Inc. for the year 2004:
    (TCO A)

    Net income (30% tax rate) $3,200,000
    Average common shares outstanding 2004 1,000,000 shares
    10% cumulative convertible preferred stock:
    Convertible into 80,000 shares of common $1,600,000
    8% convertible bonds; convertible into 75,000
    shares of common $2,500,000
    Stock options:
    Exercisable at the option price of $25 per share;
    average market price in 2004, $30 90,000

    Instructions:

    (a) Compute the basic earnings per share for 2004. (Round to the nearest penny.)
    (b) Compute the diluted earnings per share for 2004. (Round to the nearest penny.)

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    Solution Preview

    (a) Compute the basic earnings per share for 2004. (Round to the nearest penny.)

    Basic earnings per share = (Net Income - Preferred dividends)/Number of common shares
    Net Income = 3,200,000
    Preferred dividends = 1,600,000X10%=$160,000
    Number of common shares = 1,000,000
    Basic earnings per share = (3,200,000-160,000)/1,000,000 = $3.04

    (b) Compute the diluted earnings per share for ...

    Solution Summary

    The solution explains how to calculate the basic and diluted earnings per share

    $2.19

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