Amy Dyken, controller at Skysong Pharmaceutical Industries, a public company, is

Question

Amy Dyken, controller at Skysong Pharmaceutical Industries, a public company, is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for Skysong's financial statements. Below is selected financial information for the fiscal year ended June 30, 2017 SKYSONG PHARMACEUTICAL INDUSTRIES SELECTED BALANCE SHEET INFORMATION JUNE 30, 2017 Long-term debt Notes payable, 996 8% convertible bonds payable 9% bonds payable $1,000,000 5,060,000 5,900,000 $11,960,000 Total long-term debt Shareholders' equity Preferred stock, 6% cumulative, $50 par value, 103,000 shares authorized, 25,750 shares issued and outstanding Common stock, $1 par, 9,900,000 shares authorized, 990,000 shares issued and outstanding Additional paid-in capital Retained earnings $1,287,500 990,000 6,060,000 Total shareholders' equity $12,407,500

Explanation / Answer

(a) Basic EPS = Net Income - Preference Dividends / Shares outstanding

Preference dividend is NIL as no dividend on preference stock has been declared for the fiscal year 2017

Basic EPS = 1,480,000 - 0 / 990,000 = $1.49 per share

(b) Diluted EPS = Net Income - Preference dividends / Shares outsatnding + Diluted shares

Diluted shares = 5,060,000 / 1000 * 50 = 253,000 shares

Diluted EPS = 1,480,000 / 990,000 + 253,000 = 1,480,000 / 1,243,000 = $1.19 per share

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