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XYZ Company had 200,000 shares of common stock outstanding on December 31, 2020. On July 1,...

XYZ Company had 200,000 shares of common stock outstanding on December 31, 2020. On July 1, 2021, XYZ issued an additional 47,000 shares for cash. On January 1, 2021, XYZ issued 17,000 shares of convertible preferred stock. The preferred stock had a par value of $100 per share and paid a 6% dividend. Each share of preferred stock is convertible into 9 shares of common. During 2021, XYZ paid the regular annual dividend on the preferred and common stock. Net income for the year was $270,000.

Required: Calculate XYZ's basic and diluted earnings per share for 2021. (Round your answers to 2 decimal places.)

Earning per share
Basic
Diluted

Solutions

Expert Solution

a) XYZ's basic earnings per share for 2021 is calculated as follows:

   Earning Per Share = (Net Income - Prefrence Dividend) / Number of outstanding common shares

Prefrence Dividend = 17,000 shares * $100 * 6%

                           = $102,000

Number of outstanding common shares = 200,000 shares + ( 47,000 shares * 6 / 12)

                                                          = 200,000 shares + 23,500 shares

                                                          = 223,500 shares

Basic Earning Per Share = ($ 270,000 - $102,000) / 223,500 shares

                                     = $168,000 / 223,500 shares

                                  = $0.75 Per Share

   XYZ's basic earnings per share for 2021 is $0.75 Per Share            

b) XYZ's Diluted earnings per share for 2021 is calculated as follows:

   Earning Per Share = (Net Income - Prefence Dividend) / Number of outstanding common shares

Number of outstanding common shares = 200,000 shares + ( 47,000 shares * 6 / 12) + ( 17,000 shares * 9)

                                                          = 200,000 shares + 23,500 shares + 153,000 shares

                                                          = 376,500 shares

Diluted Earning Per Share = ($ 270,000 - $0) / 376,500 shares

                                    = $ 270,000/ 376,500 shares

                                  = $0.72 Per Share

     XYZ's Diluted earnings per share for 2021 is $0.72 Per Share

ekkarill92 answered 2 years ago
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