Question

Jostens Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 10% bonds outstanding during 2024. The preferred stock is convertible into 20,000 shares of common stock. During 2024, Jostens paid dividends of $1.20 per share on its common stock and $4.00 per share on its preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for the year ended December 31, 2024 was $800,000. Assume the income tax rate was 30%. Diluted earnings per share for 2024 (rounded to the nearest penny) are:

Answer 1

$3.28

Step-by-step explanation:

Weighted average number of diluted common stocks = Number of common stock + Convertible preferred stock + [(convertible stock outstanding/Number of stock convertible)*Number of common stock]

Weighted average number of diluted common stocks = 200,000 + 20,000 + (1,000,000/$1,000)*45

Weighted average number of diluted common stocks = 200,000 + 20,000 + 45,000

Weighted average number of diluted common stocks = 265,000

Diluted earnings per share = Net income + Interest on convertible bonds / Weighted average number of diluted common stocks

Diluted earnings per share = $800,000 + ($1,000,000*10%*(1-30%) / 265,000

Diluted earnings per share = $800,000 + $70,000 / 265,000

Diluted earnings per share = $870,000 / 265,000

Diluted earnings per share = $3.283018867924528

Diluted earnings per share = $3.28