Question

During 2021, Erin Corporation had 9,000,000 shares of common stock and 500,000 shares of 6% preferred stock outstanding. The preferred stock does not have cumulative or convertible features. Erin declared and paid cash dividends of $3,000,000 and $1,500,000 to common and preferred shareholders, respectively, during 2021. On January 1, 2020, Erin issued $20,000,000 of convertible 5% bonds at face value. Each $1,000 bond is convertible into five common shares. Erin's net income for the year ended December 31, 2021, was $60 million. The income tax rate is 20%. 20. What is Erin's basic earnings per share for 2021, rounded to the nearest cent

Answer 1

Erin's basic earnings per share for 2021 is $6.50 per share.

Step-by-step explanation:

Basic earnings per share (EPS) refers to a measure that show investors the amount of the net income of a company that is allotted to one share of the common stock of the company.

In the calculation of the basic EPS, the dilutive effects of convertible securities are not to be considered.

Therefore, Erin's basic earnings per share for 2021 can be calculated using the following formula:

Earnings per share (EPS) = (Net income - Preferred dividend) / Number of shares of common stock ...................... (1)

Where;

Net income = $60,000,000

Preferred dividend = $1,500,000

Number of shares of common stock = 9,000,000

Substituting the values into equation (1), we have:

Earnings per share (EPS) = ($60,000,000 - $1,500,000) / 9,000,000 = $58,500,000 / 9,000,000 = $6.50 per share.

Therefore, Erin's basic earnings per share for 2021 is $6.50 per share.