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# Basic and Diluted EPS

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The following data relates to Abel, Inc. for the year ended December 31, 2003:
Net income (30% income tax rate) \$3,000,000
Common shares outstanding January 1, 2003 1,000,000 shares
Common stock issued June 1, 2003 for cash 250,000 shares
Common stock split on July 15, 2003 at rate of 2 shares for 1
10% convertible preferred stock, convertible into
80,000 shares of common stock \$1,600,000
12% preferred stock (not convertible) \$ 500,000
8% convertible bonds, convertible into
75,000 shares of common stock \$2,500,000
Stock options, exerciseable at the option price of \$25 per share
Average market price in 2000 of \$30 per common share
Total number of common shares available 90,000 shares
Both issues of preferred stock have a par value of \$100 per share and were issued in 1998 and 2000, respectively. The bonds were issued at face value in 1999. No preferred stock dividends are or ever have been in arrears.
Required:
a. Compute basic earnings per share for 2003
Compute diluted earnings per share for 2003

#### Solution Preview

The following data relates to Abel, Inc. for the year ended December 31, 2003:
Net income (30% income tax rate) \$3,000,000
Common shares outstanding January 1, 2003 1,000,000 shares
Common stock issued June 1, 2003 for cash 250,000 shares
Common stock split on July 15, 2003 at rate of 2 shares for 1
10% convertible preferred stock, convertible into
80,000 shares of common stock \$1,600,000
12% preferred stock (not convertible) \$ 500,000
8% convertible bonds, convertible into
75,000 shares of common stock \$2,500,000
Stock options, exerciseable at the option price of \$25 per share
Average market price in 2000 of \$30 per common share
Total number of common shares available 90,000 shares
Both issues of preferred stock have a par value of ...

#### Solution Summary

This solution is comprised of a detailed explanation to compute basic earnings per share for 2003.

\$2.49