E$8-49.$ Analyzing Convertible Preferred Stock

Xerox Corp. reports the following stockholders' equity information in its $10-$K report.

Preferred Stock As of December $31,2018,$ we had one class of preferred stock outstanding. We

have issued $180,000$ shares of Series B Convertible Perpetual Preferred Stock that have an aggregate

liquidation value of $$180$ and a carrying value of $$214.$ The Series B Convertible Preferred Stock pays

quarterly cash dividends at a rate of $8\%$ per year. Each share of Preferred Stock is convertible at any

time, at the option of the holder, into $37\mathrm{.}4532$ shares of common stock for a total of $6,742$ thousand

shares $($reflecting an initial conversion price of approximately $$26\mathrm{.}70$ per share of common stock$),$ sub$-$

ject to customary anti$-$dilution adjustments.

Required

a$.$ At December $31,2018,$ Xerox reports $$214$ million of $8\%$ Series B Convertible Preferred stock. What

is the dollar amount of dividends that Xerox must pay on this stock $($assume a par value of $$1,000$ per

share$)?$

b$.$ Describe the effects that will occur to Xerox's balance sheet and its income statement when the Con$-$

vertible Preferred stock is converted.

c$.$ What is the benefit, if any, of issuing equity securities with a conversion feature? How are these se$-$

curities treated in the computation of earnings per share $($EPS$)?$