Question #1 Basic EPS

Aria Ltd. provides the following information for calendar 2020

1.Net income $ 420,000

2.Capital Structure

a) $ 8 preferred shares, no par value, cumulative, $600,000

6,000 shares outstanding

No dividends were declared during 2020.

b) Common shares, 76,000 shares outstanding on January 1.

On April 1, 40,000 shares were issued for cash.

On October 1, 16,000 shares were purchased and retired.$ 1,000,000

Instructions

Calculate basic earnings per share for 2020.

Questions #2Basic and diluted earnings per share

The following data are presented by Quentin Corp. for calendar 2020

Net income$ 4,500,000

Common shares outstanding, 1,000,000 shares

10%, cumulative preferred shares, convertible into 120,000 common shares$ 1,600,000

8% convertible bonds; convertible into 105,000 common shares$ 7,500,000

360,000 call options exercisable at $ 25 per share

Additional information

1.The common and preferred shares and the convertible bonds were outstanding from the beginning of the year.

2.In 2020, a $ 500,000 dividend was declared and distributed; however, no dividends were declared in 2019.

3.The average market price of the common shares in 2020 was $ 30. The stock price was $ 27 on January 1, 2020, and $ 35 on December 31, 2020.

4.The convertible bonds were sold at par.

5.The income tax rate for 2020 is 30%.

Instructions

a)Calculate basic EPS.

b)Calculate diluted EPS.

c)Briefly discuss the usefulness of the EPS measure in general. What is the additional importance of reporting diluted EPS?