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Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000...

Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 6% convertible bonds outstanding during 2015. The preferred stock is convertible into 40,000 shares of common stock. During 2015, Hanson paid dividends of $.60 per share on the common stock and $1.50 per share on the preferred stock. Each $1,000 bond is convertible into 40 shares of common stock. The net income for 2015 was $400,000 and the income tax rate was 30%.

4.         Basic earnings per share for 2015 is (rounded to the nearest penny)

a.   $1.57.

b.   $1.71.

c.   $1.80.

d.   $1.85.

5.         Diluted earnings per share for 2015 is (rounded to the nearest penny)

a.   $1.41.

b.   $1.49.

c.   $1.53.

d.   $1.58.

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Expert Solution

Basic Earnings per share = (Net Income – Preferred Dividend) / Weighted shares Outstanding

Net income for 2015 400000
Less: Preferred dividends (20000*$1.5) 30000
Net income for Common Stockholders 370000
Average Common Shares outstanding 200000
Basic Earnings per share for 2015 1.85

Basic Earnings per share for 2015 is d. $1.85/-

Diluted Earnings per share=

[Net Income(Before preference Dividend) + Interest Expenses(1-tax)] / [common shares outstanding + Additional shares aganist exercise of convertable securities]

=[$400,000 + $60,000(1-30%)] / [200000 + 80000]

= $442,000 / 280000

= $1.5786

Diluted Earnings per share is d. $1.58 (round off)

Additional shares aganist exercise of convertable securities

Additional shares against exercise of convertible securities 80000
40,000 shares common stock for preferred stock
40,000 shares of common stock for convertible Bonds [(1000000/1000)*40]

Pleaselike this answer it helps me a lot. Thank You

ekkarill92 answered 2 years ago
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