See attached Excel sheet for better format.
Please show how you get all calculations.
The information below pertains to Clause Company for 2011.
Net income for the year $1,200,000
8% convertible bonds issued at par ($ 1,000 per bond). Each bond is
convertible into 40 shares of common stock. 2,000,000
6% convertible, cumulative preferred stock, $100 par value.
Each share is convertible into 3 shares of common stock. 3,000,000
Common stock, $10 par value 6,000,000
Common stock options ( granted in a prior year) to purchase
50,000 shares of common stock at $20 per share 500,000
Tax rate for 2011 40%
Average market price of common stock $25 per share
There were no changes during 2011 in the number of common shares,
preferred shares, or convertible bonds outstanding. There is no treasury stock.
( a) Compute basic earnings per share for 2011.
( b) Compute diluted earnings per share for 2011.
Net Income - Preferred Dividends
( a) Basic earnings per share = Average Common Shares Outstanding
Basic earnings per share = Formula shares
Basic earnings per share = Formula per share
Net Income - (1) Preferred Dividends + (2) Interest [net of tax]
( b) Diluted EPS = Ave. Common Shares Outstanding + (3) Potentially Dilutive Shares
Notes: (1) Preferred Dividends = Rate x (Shares Outstanding x Par Value)
Preferred Dividends = Formula
(2) Interest = (interest rate x covertible bonds) x (1 - tax rate)
Interest = Formula
(3) Potentially Dilutive Shares include convertible bonds & stock options:
a. Convertible Bonds = (Principal divided by $1,000) x 40 shares
Convertible Bonds = Formula shares
b. Stock Options = [(Market Price - Option Price) / Market Price] x option shares
Diluted earnings per share = Formula shares
Diluted earnings per share = Formula per share
Your tutorial is in Excel (attached). Click in cells to see computations.
Notes are given to show you the anti-dilutive security so you can ignore that one and adjust only for the other two in the diluted earnings per share.