What is AboveAverage\'s diluted Earnings Per Share (EPS)? Assume that only the c

Question

What is AboveAverage's diluted Earnings Per Share (EPS)? Assume that only the company's preferred stock is convertible to common equity.

AboveAverage Corporation (AAC) Balance Sheet 2014 2013 Assets Current assets:    Cash $3,916,040 $4,386,040 Marketable securities $2,525,000 $1,875,000    Accounts receivable, net 3,249,500 $3,055,500    Inventories 2,990,000 3,040,000         Total current assets 12,680,540 $12,356,540 Net Fixed assets 2,225,500 $2,000,000 Non-amortizable intangible assets 125,000 $90,000         Total assets $15,031,040 $14,446,540 Liabilities and Stockholders’ Equity Current Liabilities:    Notes Payable due within one year $1,000,000 $1,000,000    Accounts payable and accrued liabilities 2,221,000 $2,091,500    Federal income taxes payable 130,000 $300,000         Total current liabilities 3,351,000 $3,391,500 Notes payable due after one year 2,000,000 $3,000,000 Long-term bonds 1,500,000 $2,465,000 Stockholders’ equity:    Preferred stock 240,000 $240,000    Capital stock 1,000,000 $600,000    Additional paid-in capital 4,000,000 $2,400,000    Retained earnings 2,940,040 $2,350,040         Total stockholders’ equity 8,180,040 $5,590,040         Total liabilities and stockholders’ equity $15,031,040 $14,446,540

Explanation / Answer

Note:In the beginning of question, it is said that only preferred stock is potential equity share.so, if no. of bonds had been given then my answer will be reached as given in the question.but due to absence of no. of bonds diluted earning per is not matching with the given answer.

Net Income             1,008,000 Amount ($) Less: Dividend on preferred stock 18,000 No. of preferred stock                24,000 No. of preferred stock              24,000 Earning available to common stockholders 990,000 conversion ratio 2 Dividend per share 0.75 No. of common shares outstanding 1,000,000 convertible preferred stock 48,000 Total dividend on preferred stock 18,000 Earning per common share 0.99 Diluted earning per share = (profit or loss available to common stockholders+Convertible prfereed dividend)/Weighted average no. of common shares outstanding during the year +all dilutive potential common stock)   = (990000+18000)/(1000000+48000) = 0.96

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