Thrifty Co. reported net income of $795,000 for its fiscal year ended January 31

Question

Thrifty Co. reported net income of $795,000 for its fiscal year ended January 31, 2017. At the beginning of that fiscal year, 71,000 shares of common stock were outstanding. On October 31, 2016, an additional 36,000 shares were issued. No other changes in common shares outstanding occurred during the year. Also during the year, the company paid the annual dividend on the 30,000 shares of 5%, $60 par value preferred stock that were outstanding the entire year.

Required:  

a. Calculate basic earnings per share of common stock for the year ended January 31, 2017. (Round your answer to 2 decimal places.)

b. If Thrifty Co.'s preferred stock were convertible into common stock, diluted earnings per share can also be calculated.

Explanation / Answer

Weighted average number of shares = 71000 + (36000 x 2/12)

=71000+ 6000 = 78000

Since 36000 shares were issued for two months (November and December)

Profit available for equity shareholders= 79500- (30000 x 60 x 5%)

= 795000 - 90000

= 705000

EPS = 705000/ 78000 = $9.03

Yes, Diluted EPS can be calculated as the preference shares have the potential to be converted into ordinary equityu shares.

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