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In: Accounting

Blurash Corp. had the following stockholders’ equity at December 31, 20X2: Preferred stock: $50 par, 6%,...

Blurash Corp. had the following stockholders’ equity at December 31, 20X2:

Preferred stock: $50 par, 6%, convertible, cumulative 20,000
                       shares authorized, 6,000 shares issued and outstanding      $300,000

Paid-in capital in excess of par-Preferred                                                                     180,000

Common stock: $5 par; 1,000,000 shares authorized,    100,000
                    shares issued and outstanding                                                                   500,000

Paid-in capital in excess of par-Common                                                       300,000

Retained Earnings                                                                                    720,000

Total Stockholders’ Equity                                                                                                $2,000,000

Other information relating to Blurash Corp. is as follows:

Blurash’s net income for 20X2 was $600,000. The tax rate was 30%.

No transactions affecting capital stock occurred during the year. (Therefore, you don’t have to calculate weighted average number of shares for Basic EPS!)

Blurash had $1,000,000 of 6% convertible bonds payable. Each $1,000 bond is convertible into 20 shares of common stock. The bonds were issued several years ago.

Each share of preferred stock is convertible into 10 shares of common stock.

10,000 stock options were outstanding, each for 2 shares of common stock at an option price of $15.

The average price of the common stock during 20X0 was $25.

Required:   Calculate diluted earnings per share

Solutions

Expert Solution

Particulars Amount
Net Income $      6,00,000
Less: Preferred Dividend $          18,000
(300000*6%)
Net Income attributable to Common Stock $      5,82,000
Particulars Numerator Denominator
Net Income attributable to Common Stock $                         5,82,000
Weighted Average number of Shares                       1,00,000
Conversion of Convertible Bonds $                            42,000                           20,000
(1000000*6%*(1-0.30) (1000000/1000*20)
Conversion of Preferred Stock $                            18,000                           60,000
(300000*6%) (6000*10)
Stock Options                           12,000
(10000*2*15/25)
Total $                         6,42,000                       1,92,000
Diluted EPS = 642000/192000 = $ 3.34

ekkarill92 answered 1 year ago
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