Question

Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 10% convertible bonds outstanding during 2011. The preferred stock is convertible into 40,000 shares of common stock. During 2011, Hanson paid dividends of $1.20 per share on the common stock and $4 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2011 was $800,000 and the income tax rate was 30%.

Basic earnings per share for 2011 is (rounded to the nearest penny)
a. $2.94.
b. $3.22.
c. $3.35.
d. $3.60.

Answer 1

The basic earnings per share for Hanson Co. for the year 2011 is calculated by subtracting the preferred dividends from the net income and dividing by the total number of common shares, resulting in a basic EPS of $3.60.

Step-by-step explanation:

The student's question pertains to calculating the basic earnings per share (EPS) for Hanson Co. for the year 2011. The basic EPS is a measure of the company's profitability on a per-share basis and is calculated as (Net Income - Preferred Dividends) / Total Weighted Average Shares of Common Stock. For Hanson Co., the calculation is straightforward:

Net Income = $800,000
Preferred Dividends = 20,000 shares * $4 per share = $80,000
Total Common Shares = 200,000 shares
Basic EPS = ($800,000 - $80,000) / 200,000 = $3.60

Therefore, the correct answer is d. $3.60.