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Impact on EPS, Rankings, and Computations Waseca Company had 5 convertible securities outstanding during all of...

Impact on EPS, Rankings, and Computations

Waseca Company had 5 convertible securities outstanding during all of 2016. It paid the appropriate interest (and amortized any related premium or discount using the straightline method) and dividends on each security during 2016. Each of the convertible securities is described in the following table:

Security Description
10.2% bonds $200,000 face value. Issued at par. Each $1,000 bond is convertible into 28 shares of common stock.
12.0% bonds $160,000 face value. Issued at 110. Premium being amortized over 20-year life. Each $1,000 bond is convertible into 47 shares of common stock.
9.0% bonds $200,000 face value. Issued at 95. Discount being amortized over 10-year life. Each $1,000 bond is convertible into 44 shares of common stock.
8.3% preferred stock $120,000 par value. Issued at 108. Each $100 par preferred stock is convertible into 3.9 shares of common stock.
7.5% preferred stock $180,000 par value. Issued at par. Each $100 par preferred stock is convertible into 6 shares of common stock.

Additional data:

Net income for 2016 totaled $119,460. The weighted average number of common shares outstanding during 2016 was 40,000 shares. No share options or warrants are outstanding. The effective corporate income tax rate is 30%.

Required:

1. Prepare a schedule that lists the impact of the assumed conversion of each convertible security on diluted earnings per share. Round to two decimal places.

Waseca Company
Schedule of Impact on EPS
Impact
10.2% bonds $
12.0% bonds $
9.0% bonds $
8.3% preferred stock $
7.5% preferred stock $

2. Prepare a ranking from 1-5 of the order in which each of the convertible securities should be included in diluted earnings per share. The convertible security having the most dilutive impact on diluted earnings per share is listed at the top of the ranking (i.e. "1").

Waseca Company
Schedule of Ranking
Ranking
10.2% bonds
12.0% bonds
9.0% bonds
8.3% preferred stock
7.5% preferred stock

3. Compute basic earnings per share. Round to two decimal places.
$ ___ per share

4. Compute diluted earnings per share. Round to two decimal places.
$ ___ per share

5. Indicate the amount(s) of the earnings per share that Waseca would report on its 2016 income statement. Round to the nearest cent.

Basic earnings per share: $ ___

Diluted earnings per share: $ ___

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ekkarill92 answered 7 months ago
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