Hanson co. had 200,000 shares of common stock, 20,000 shares of convertible pref

Question

Hanson co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and 1,000,000 of 10% convertible bonds outstanding in 2011. The preferred stock is convertible into 40,000 shares of common stock. During 2011, Hanson paid dividends of $1.20 per share of common staock and $4 per share of preferred stock. Each $1000 bond is covertible into 45 shares of common stock. The net income for 2011 was $800,000 and the income tax rate was 30%. Basic earning per share for 2011 is?
a.2.94
b.3.22
c.3.35
d.3.60

Explanation / Answer

The answer is d) $ 3.60 to find this, take the net income ($800,000) subtract the (number of shares of convertible preferred stock (20,000) times the price per share ($4 per share) then divide the result by the number of shares of common stock (200,000) = 800,000 - (20,000*4) = 800,000 - 80,000 = 720,000 then take 720,000 / 200,000 = 3.60

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