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Convertible Preferred Stock, Convertible Bonds, and EPS Francis Company has 31,200 shares of common stock outstanding...

Convertible Preferred Stock, Convertible Bonds, and EPS

Francis Company has 31,200 shares of common stock outstanding at the beginning of 2016. Francis issued 3,900 additional shares on May 1 and 2,600 additional shares on September 30. It also has two convertible securities outstanding at the end of 2016. These are:

  1. Convertible preferred stock: 3,250 shares of 9.0%, $50 par, preferred stock were issued on January 2, 2013, for $60 per share. Each share of preferred stock is convertible into 3 shares of common stock. Current dividends have been declared and paid. To date, no preferred stock has been converted.
  2. Convertible bonds: Bonds with a face value of $325000 and an interest rate of 5.0% were issued at par in 2015. Each $1000 bond is convertible into 25 shares of common stock. To date, no bonds have been converted.

Francis earned net income of $79000 during 2016. The income tax rate is 30%.

Required:

1. Compute the number of shares of common stock that Francis should use in calculating basic earnings per share for 2016.

Weighted average shares outstanding:  shares

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2. Calculate basic earnings per share for 2016. If required, round your answer to two decimal places.

Basic earnings per share: $

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3. Calculate diluted earnings per share for 2016 and the incremental EPS of the preferred stock and convertible bonds. If required, round your answers to two decimal places.

Diluted earnings per share: $

Incremental earnings per share
Bonds: $
Preferred: $

Solutions

Expert Solution

1.

Shares Outstanding Period Covered Weighted Shares
                              31,000 4/12                       10,333
                              34,900 5/12                       14,542
                              37,500 3/12                         9,375
Weighted average shares outstanding                       34,250

2.

Basic Earning Per Share Net Income (after tax) - Preference Dividend
Weighted average shares outstanding
(79000 - 30%) - (3250*50*9%)
34250
64374.7
34250
                          1.88

3.

Diluted EPS Net Income (after tax)
Weighted average shares outstanding + Diluted Shares
(79000 + (325000 *5%)) - 30%
34250 + (3250*3) + (325*25)
66675
52125
1.28

ekkarill92 answered 10 months ago
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