Daley Company had 200,000 shares of common stock outstanding on December 31, 201
ID: 2499030 • Letter: D
Question
Daley Company had 200,000 shares of common stock outstanding on December 31, 2015. On July 1, 2016, Daley issued an additional 50,000 shares for cash. On January 1, 2016, Daley issued 20,000 shares of convertible preferred stock. The preferred stock had a par value of $100 per share and paid a 5% dividend. Each share of preferred stock is convertible into 8 shares of common. During 2016, Daley paid the regular annual dividend on the preferred and common stock. Net income for the year was $300,000.
Required: Calculate Daley (#4) basic and (#5) diluted earnings per share (rounded to 2 decimal places) for 2016.
Explanation / Answer
Basic EPS= Net income- dividend paid to common shareholders/ weightage avg of shares
weightage avg of shares=(200,000*12/12)+(50000*6/12)=225,000
=300,000-0)/225000=1.33
Diluted EPS=Net Income-dividend paid to common shareholders-dividend paid to preferred shareholders/weightage avg of shares
=300,000-(5*20000)/385,000
weightage avg of shares=(200,000*12/12)+(50000*6/12)+(20000*8*12/12)=385,000
=300,000-(5*20000)/385,000
=0.26
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