Question
In: Accounting
Spartan Co. has the following selected securities outstanding all year: Preferred stock, cumulative, 5%, $100 par,...
Spartan Co. has the following selected securities outstanding all year:
Preferred stock, cumulative, 5%, $100 par, 3,000 shares
Common stock, $1 par, 18,000 shares
Bonds payable, $80,000 value, 7%, convertible into 2,000 shares of common stock
Net income for the year is $79,200; the income tax rate is 30%.
What is Spartan Co.'s diluted EPS, rounded.?
Question 1 options:
|
A. |
$3.49 |
|
B. |
Bonds are antidilutive |
|
C, |
$3.01 |
|
D. |
$3.41 |
Solutions
Expert Solution
Answer is D. $3.41
| Ref | Particulars | Basic EPS | Diluted EPS |
| A | Net income for the year | $79,200.00 | $79,200.00 |
| B |
Less: Preference dividend (300000*5%) |
$15,000.00 | $15,000.00 |
| C | Net income available to common stock holders(A-B) | $64,200.00 | $64,200.00 |
| D | Add:After tax cost of interest (80,000*0.07*(1-0.30)) | $0.00 | $3,920.00 |
| E | Numerator (C=D) | $64,200.00 | $68,120.00 |
| F | Weighted average number of common shares outstanding | 18,000 | 18,000 |
| G | Additional shares issued if debt converted | - | 2,000 |
| H | Denominator (F+G) | 18,000 | 20,000 |
| I | EPS (E/H) | $3.57 | $3.41 |
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