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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.)

#### 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