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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

ekkarill92 answered 3 years ago
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