Question

During 2018, Angel Corporation had 900,000 shares of common stock and 50,000 shares of 6% preferred stock outstanding. The preferred stock does not have cumulative or convertible features. Angel declared and paid cash dividends of $300,000 and $150,000 to common and preferred shareholders, respectively, during 2018. On January 1, 2017, Angel issued $2,000,000 of convertible 5% bonds at face value. Each $1,000 bond is convertible into five common shares. Angel's net income for the year ended December 31, 2018, was $6 million. The income tax rate is 20%. What is Angel's basic earnings per share for 2018, rounded to the nearest cent?

Answer 1

$6.5 per share

Step-by-step explanation:

Given that,

Net income = $6,000,000

Preferred dividend = $150,000

Weighted average number of common shares = 900,000

Angel's Basic earnings per share:

[Net income - Preferred dividend ] ÷ Weighted average number of common shares

= [$6,000,000 - $150,000] ÷ 900,000

= 5,850,000 ÷ 900,000

= $6.5 per share