Sassy Corporation had the following securities outstanding at its fiscal year-end December 31, 20X7:

1. Preferred Shares, cumulative, convertible, $1.25 dividend per quarter, no-par. Authorization limit 100,000; issued and outstanding 40,000 shares. Issued this year on October 1, 20X7.

2. Common Shares, no par; authorized 5,000,000 shares; issued and outstanding 600,000 shares

3. 200,000 Options: $11 exercise price; each option allows for the purchase of one share

4. 9% Convertible Bonds, par value $2,500,000. The bonds were issued this year on May 1, 20X7.

Other information for 20X7:

1. The tax rate is 38%
2. No dividends were declared in 20X7.
3. Interest expense was $216,000 on the 9% bonds.
4. The 9% convertible bonds are convertible at a rate of seven shares for each $100 bond.
5. 20X7 net income was $790,000.
6. Options were outstanding all year to purchase 200,000 common shares at $11 per share.
7. The preferred shares are convertible into common shares at a rate of 9 commons for one preferred share.
8. Common shares traded for an average of $30 during the year.
9. No common shares were issued or retired during the year.

Required:

1. Calculate basic EPS for 20X7. (4 marks)

2. Test each security for dilution. State if each is dilutive or anti-dilutive. Show calculations for dilution testing. If options are dilutive calculate and clearly state how many new shares would be issued. (9 marks)

3. Prepare a cascade worksheet to show the calculation of diluted EPS, beginning with basic EPS. Clearly, a state whose EPS number is the dilutive EPS. (5 marks)

Answer rating: 100% (QA)

Myco s basic earnings per share for the year ended Dece... View the full answer