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During 2018, Angel Corporation had 900,000 shares of common stock and 50,000 shares of 6% preferred...

During 2018, Angel Corporation had 900,000 shares of common stock and 50,000 shares of 6% preferred stock outstanding. The preferred stock is not convertible. Angel declared and paid cash dividends of $300,000 and $150,000 to common and preferred shareholders, respectively, during 2018. On January 1, 2017, Angel issued $2,000,000 of convertible 5% bonds at face value. Each $1,000 bond is convertible into 10 common shares. Angels net income for the year ended December 31, 2018, was $6 million. The income tax rate is 20%. What is Angel's basic earnings per share for 2018, rounded to the nearest cent? What will Angel report as diluted earnings per share for 2018, rounded to the nearest cent?

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Expert Solution

Basic earnings per share: [Net income -preferred dividend ]/weighted average number of common shares

            = [6,000,000 - 150,000. ]/900,000

               = 5850000/900000

                = $ 6.5 per share

2)

number of converted bonds in to shares : 2000000*10/1000=20000 shares

Interest on debt : 2000000*.05 = 100000

After tax interest :100000(1-.20)= 80000

Diluted earning per share :[net income +increase in interest (after tax)-preferred dividend]/[weighted average commonshares+converted shares]

        =[6000000+80000-150000]/[900000+20000]

         = 5930000/920000

            = $6.45 per share

ekkarill92 answered 1 year ago
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