Question

Computing Basic and Diluted Earnings per Share Soliman Corporation began the year 2018 with 25,000 shares of common stock and 5,000 shares of convertible preferred stock outstanding. On May 1, an additional 9,000 shares of common stock were issued. On July 1, 6,000 shares of common stock were acquired for the treasury. On September 1, the 6,000 treasury shares of common stock were reissued. The preferred stock has a $4 per share dividend rate, and each share may be converted into 2 shares of common stock. Soliman Corporation’s 2018 net income is $230,000.

Required
a. Compute earnings per share for 2018. Round your answer to two decimal places.
b. Compute diluted earnings per share for 2018. Round your answer to two decimal places.

Answer 1

Soliman Corporation

1. Basic EPS

= $6.18 per share

2. Diluted EPS

= $5.23 per share

Step-by-step explanation:

a) Data and Calculations:

Convertible Preferred Stock = 5,000 or 10,000 Common Shares

Common Stock:

January 1, 2018 = 25,000

May 1, 2018 Issued 9,000

July 1, 2018 Treasury (6,000)

September 1, 2018 Treasury 6,000

Total outstanding 34,000

Converted preferred stock 10,000

Total outstanding 44,000

2018 Net Income = $230,000

Preferred dividend 20,000 ($4 * 5,000)

Income for Common $210,000

Basic Earnings per share = $210,000/34,000 = $6.18

Diluted Earnings per share = $230,000/44,000 = $5.23