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Problem 19-14 EPS; convertible preferred stock; convertible bonds; order of entry [LO19-7, 19-9, 19-10] Information from...

Problem 19-14 EPS; convertible preferred stock; convertible bonds; order of entry [LO19-7, 19-9, 19-10]

Information from the financial statements of Henderson-Niles Industries included the following at December 31, 2018:

Common shares outstanding throughout the year 100 million
Convertible preferred shares (convertible into 36 million shares of common) 75 million
Convertible 10% bonds (convertible into 23.0 million shares of common) $ 2,800 million


Henderson-Niles’s net income for the year ended December 31, 2018, is $960 million. The income tax rate is 40%. Henderson-Niles paid dividends of $3 per share on its preferred stock during 2018.

Required:
Compute basic and diluted earnings per share for the year ended December 31, 2018. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

Solutions

Expert Solution

Calculation of EPS - Amount in Million
Basic EPS
net income-prefrred dividend/weighted average no of common share outstanding
preferred dividend = 75*3 = 225
Basic EPS = 960-225/100
Basic EPS = 7.35
Diluted EPS - with conversion of preferred stock & without conversion of bond
NET income-preferred dividend+preferred divided
weighted avg no of common share outstanding+no of share due to conversion of preffered share
Dilluted EPS
960-225+225
100+36
7.06 per share
Diluted EPS - with conversion of preferred stock & with conversion of bond
net income-preferred dividend+prefrred dividend+interest saving after tax
weighted avg no of common share outstanding+no of share due to conversion
of preferred shares+no of shares due of bond conversion
Interest of bonds = 2800*10% = 280
Interest saving after tax = 280*(1-0.40) = 168
Dilluted EPS = 960-225+225+168
100+36+23
Dilluted EPS = 7.06 per share

ekkarill92 answered 1 year ago
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