A company computed basic earnings per share of $0.63 for 2020 as follows:

Net income available to Common Shares = $570,000

Weighted average shares outstanding = 900,000

In addition, throughout the year 2020, the company had the following:

• 20,000 shares of $10 par value, 8.5% cumulative preferred stock which is convertible. Each share of preferred stock is convertible into 4 shares of common stock.
• $1M, 7% convertible bonds. The bonds had originally been issued at par value and are convertible into 100,000 shares of common stock.
• 200,000 fully vested stock options with an exercise price of $25 per share. The average common stock price for the year was $40 per share. The options were originally granted in 2015.
• The effective tax rate was 20%

Compute the dilutive effect of convertible preferred stock on earnings per share.

Compute the dilutive effect of convertible bonds on earnings per share.

Compute the “incremental shares” of stock options on earnings per share.

Compute Diluted Earnings per Share for 2020.

Answer rating: 100% (QA)

DEPSNet Income available to common sharespreferred dividend and interest expense of convertible shar... View the full answer