Question

b. Compute the required EPS amounts.

• Note: Round earnings per share amounts to two decimal places.
• Note: If an amount is not required, leave the answer blank (zero).

	Net Income Available to Common Stockholders	Weighted Avg. Common Shares Outstanding	Per Share
Basic EPS
Diluted EPS

At the end of 2020, the records of Wolverine Corporation reflected the following.

Common stock, $10 par; authorized 100,000 shares: issued and outstanding throughout the year,
50,000 shares			$500,000
Preferred stock, $50 par, 7%, cumulative, convertible into common stock, share for share;
authorized, 10,000 shares; issued and outstanding throughout year, 2,000 shares			100,000
Contributed capital in excess of par, common stock			80,000
Retained earnings (no dividends declared during the year)			470,000
Bonds payable, 10% nonconvertible, issued at par in 2016			150,000
Net income			120,000
Stock options outstanding (all year for 10,000 shares of common stock at $15 per share)
Income tax rate, 25%
Average market price of the common stock during 2020, $25 per share

Answer 1

Net Income		120000
Preference Dividend		70000
Profit available for Equity share holders		50000
Basic EPS	=	Profit available for Equity share holders
Number of Equity shares
	=	50000
	50000
Basic EPS	=	1
Stock Option	=	10000
Average market price	=	25
Option Price	=	15
Future amount receivable	=	150000 (10000 * 15)
Number of shares if given at markert price	=	6000 (15000/ 25)
Number ofshares issued without consideration	=	4000
Preference shares (Convertible)	=	2000
Diluted EPS	=	Profit available for Equity share holders
Number of Equity shares + Number ofshares issued without consideration + Covertible preference share
	=	50000
	56,000 (50000+4000+2000)
Diluted EPS	=	0.89

	Net Income Available to Common Stockholders		Per Share
Basic EPS	50,000	50000	1
Diluted EPS	50000	56000	0.89