Hanson Co. had 200,000 shares of common stock, 20,000 shares of convert ible pre

Question

Hanson Co. had 200,000 shares of common stock, 20,000 shares of convert

ible preferred stock, and

$1,000,000 of 7.5% convertible bonds outstanding during 2013. The preferred

stock is convertible into

40,000 shares of common stock. During 2013, Hanson paid dividends of $.90 per

share on the common

stock and $3 per share on the preferred stock. Each $1,000 bond is co

nvertible into 45 shares of common

stock. The net income for 2013 was $600,000 and the income tax rate

was 30%.

instruction: Calculate the basic EPS and diluted EPS

Explanation / Answer

EPS = Earning available for equity shareholders / No. Of equity shares Net Income = $600000 Less: Intt on Bond = $75000 [$1000000*7.5%] EBT 525000 $ Less: Tax 157500 EAT 367500 Less: Pref Div 60000 [20000*3$] Earning for common stockholders 307500 No. Of Common Stock 200000 EPS 1.5375 $/share DEPS = Earning Available for common stock holders+ After tax intt on convertible bonds+Convertible pref Dividend Weighted average number of common shares outstanding during the period+ All dilutive potential common stock) = 307500$ + 75000$(1-.30)+60000$ 200000+40000+(45stock* 1000bonds) = 420000 $ 285000 stocks = 1.473684 $/share

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