A20-12 EPS, Individual Effect, Cascade

The Birch Corp. has the following items in its capital structure at 31 December 20X7, the end of the fiscal year:

a. Options to purchase 400,000 common shares were outstanding for the entire period. The exercise price is $17.50 per share. The average common share price during the period was $40. b. Preferred shares, $2 annual dividend, cumulative, no-par, convertible into common shares at the rate of 5 shares of common for each preferred share. 7,000 shares were outstanding for the whole year. c. $3 million par value of 7% debentures, outstanding for the entire year. Debentures are convertible into 5 common shares for each $100 bond. Interest expense of $285,000 was recognized during the year. d. Preferred shares, $5 annual dividend, cumulative, no-par, convertible into common shares at the rate of 3 shares of common for each one preferred share. 4,000 shares were outstanding for the entire year. No dividends were declared in 20X7 on these shares. e. $8 million par value of 5.5% debentures, outstanding for the entire year. Debentures are convertible into a total of 520,000 common shares. Interest expense of $660,000 was recognized during the year.

Required: 1. Calculate the individual effect for diluted EPS for each of the above items. The tax rate is 35%. For options, calculate shares issued and shares retired.

2. Assume Birch reported basic EPS from continuing operations items of $1.29 [($1,000,000 $14,000 $20,000) 750,000], discontinued operations gain of $1.00 ($750,000 750,000) and EPS for net earnings of $2.29 [($1,750,000 $14,000 $20,000) 750,000]. Calculate diluted EPS, and show how it would be presented on the statement of comprehensive income