The information below pertains to Marigold Company for 2018. There were no chang

Question

The information below pertains to Marigold Company for 2018.

There were no changes during 2018 in the number of common shares, preferred shares, or convertible bonds outstanding. There is no treasury stock. The company also has common stock options (granted in a prior year) to purchase 77,900 shares of common stock at $20 per share.

(a) Compute basic earnings per share for 2018

(b) Compute diluted earnings per share for 2018.

Net income for the year $1,140,000 6% convertible bonds issued at par ($1,000 per bond); each bond is convertible into
    30 shares of common stock 2,010,000 6% convertible, cumulative preferred stock, $100 par value; each share is convertible
     into 3 shares of common stock 3,820,000 Common stock, $10 par value 5,820,000 Tax rate for 2018 40% Average market price of common stock $25 per share

Explanation / Answer

(a) BASIC EARNING PER SHARE = EARNING ATTRIBULABLE DIVIDE BY WEIGHTED AVERAGE OF OUTSTANDING SHARES

Therefore, BEPS = 684000/582000

= 1.18

(b) DILUTED EARNING PER SHARE

= Earning from basic +- effect of ditued POS divide by Weighted avg. From basic +- effect of dilutive POS

Therefore, DEPS = 684000 + 0 / 582000 + 77900

= 1.04

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