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Computing EPS Balance Sheets

The Shareholders' Equity section of Holiday Roads Company's balance sheet shows:

31/12/2010 31/12/2011
Preferred dividend, $200 par value, 5% dividend,
20,000 shares issued and outstanding $4,000,000 $4,000,000
Common stock, $2 par value $400,000 $520,000
Paid-in capital in excess of par $19,600,000 $26,800,000
Retained earnings $3,000,000 $4,000,000
Total stockholders' equity $27,000,000 $35,320,000

Net income for 2011 was $1,700,000, preferred stock dividends were $200,000, and common stock dividends were $500,000. The company issued 60,000 shares of common stock on July 1, 2011.

1. What is the company's basic EPS for 2011?
2. Suppose that Holiday Roads also had $500,000 of 10% convertible subordinated debentures outstanding at the beginning and end of 2011. Each $1,000 bond is convertible into 100 shares of common stock, and the company's income tax rate is 34%. What is the company's diluted EPS for 2011?
3. What other types of securities in addition to convertible debt can affect the calculation of diluted EPS?

Solution Summary

The expert computes EPS balance sheets. The total stockholders' equity is determined.