Question

Information concerning the capital structure of Piper Corporation is as follows:

December 31,
2011 2010
Common stock 150,000 shares 150,000 shares
Convertible preferred stock 15,000 shares 15,000 shares
9% convertible bonds $2,400,000 $2,400,000
During 2011, Piper paid dividends of $1.20 per share on its common stock and $3.00 per share on its preferred stock. The preferred stock is convertible into 30,000 shares of common stock. The 9% convertible bonds are convertible into 75,000 shares of common stock. The net income for the year ended December 31, 2011, was $600,000. Assume that the income tax rate was 30%.



What should be the basic earnings per share for the year ended December 31, 2011, rounded to the nearest penny?
a. $2.66
b. $2.92
c. $3.70
d. $4.00

Answer 1

The basic earnings per share for Piper Corporation for the year ended December 31, 2011, is $3.08 per share.

Step-by-step explanation:

To calculate the basic earnings per share, we need to consider the net income and the number of shares outstanding. In this case, the net income for the year ended December 31, 2011, was $600,000.

To calculate the weighted average number of shares outstanding, we add the common stock shares and the converted preferred stock shares and the converted bonds shares, which gives us a total of 195,000 shares.

Dividing the net income by the weighted average number of shares will give us the basic earnings per share. Thus, $600,000 / 195,000 shares = $3.08 per share.