Question

Given the following year-end information, Compute Greenwood Corporation's basic and diluted earnings per share. Net income, $15,000 The income tax rate, 30% 4,000 shares of common stock were outstanding the entire year. 500 shares of 10%, $50 par (and issuance price) convertible preferred stock were outstanding the entire year. Dividends of $2,500 were declared on this stock during the year. Each share of preferred stock is convertible into 5 shares of common stock.

Answer 1

Basic earning per share = $3.13

Diluted earnings per share = $2.31

Step-by-step explanation:

The computation of basic and diluted earnings per share is shown below:-

Basic earning per share = (Net income - Preferred dividend) ÷ Outstanding number of shares

= ($15,000 - $2,500) ÷ 4,000

= $12,500 ÷ 4,000

= $3.13

Diluted earnings per share = Net income ÷ (Outstanding number of shares + Converted common shares)

= $15,000 ÷ (4,000 + (Preferred shares × 5 shares of common stock)

= $15,000 ÷ (4,000 + (500 × 5)

= $15,000 ÷ (4,000 + 2,500)

= $15,000 ÷ 6,500

= $2.31