During all of 2018, Sandhawalia Computer Corp.s (SCC) capital structure included the following: 200,000 ordinary shares
Question:
During all of 2018, Sandhawalia Computer Corp.’s (SCC) capital structure included the following:
■ 200,000 ordinary shares outstanding
■ 15,000, $100, 4% non-cumulative Series 1 preferred shares
■ 12,000, $100, 3% cumulative Series 2 preferred shares
■ $1,000,000, 5% bonds maturing on January 1, 2021. The bonds were issued at par. Each $1,000 bond is convertible into 18 ordinary shares.
SCC’s net income (loss) for the year ended December 31, 2018, was ($250,000). Its income tax rate was 35%. The preferred shareholders received their full dividend entitlement in 2016; however, dividends were neither declared nor paid during 2017. During 2018, the company declared and paid a total of $132,000 in dividends.
Required:
a. Calculate SCC’s basic EPS for 2018.
b. Are the convertible bonds dilutive or antidilutive in nature? Why?
c. Calculate SCC’s diluted EPS for 2018.
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