Question

During the current year, Comma Co. had outstanding: 25,000 shares of common stock; 8,000 shares of $20 par, 10% cumulative preferred stock; and 3,000 bonds that are $1,000 par and 9% convertible. The bonds were originally issued at par, and each bond was convertible into 10 shares of common stock. During the year, net income was $200,000, no dividends were declared, and the tax rate was 30%. What amount was Comma’s basic earnings per share for the current year?

Answer 1

The Comma’s basic earnings per share for the current year was $7.36

Step-by-step explanation:

The computation of the earning per share is shown below

Earning per share = (Net income - preferred dividend) ÷ (Number of shares)

where,

Net income is $200,000

Preference dividend = Number of shares × price per share × rate

= 8,000 shares × $20 × 10%

= $16,000

And, the number of outstanding shares is $25,000

Now put these values to the above formula

So, the value would equal to

= ($200,000 - $16,000) ÷ (25,000 shares)

= $184,000 ÷ 25,000 shares

= $7.36 per share