Question

hnberg Corporation had 540,000 shares of common stock issued and outstanding at January 1. No common shares were issued during the year, but on January 1, Ahnberg issued 160,000 shares of convertible preferred stock. The preferred shares are convertible into 320,000 shares of common stock. During the year Ahnberg paid $96,000 cash dividends on the preferred stock. Net income was $906,000. What were Ahnberg's basic and diluted earnings per share for the year

Answer 1

Answer: See explanation

Step-by-step explanation:

Ahnbergs basic earnings per share will be calculated as:

= (Net Income - preferred dividends)/Weighted average shares outstanding

= ($906,000 - $96,000) / 540,000

= $810000 / 540000

= 1.50

The diluted earnings per share will be:

= Total Income - preferred dividends/(outstanding shares + Diluted Shares)

= 906000 / (96000 + 320000)

= 906000 / 416000

= 2.18