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XYZ Company had 200,000 shares of common stock outstanding on December 31, 2008. On July 1, 2009, XYZ issued an additional 50,000 shares for cash. On January 1, 2009, XYZ 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 2009, XYZ paid the regular annual dividend on the preferred and common stock. Net income for the year was $300,000.
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Calculate XYZ's basic and diluted earnings per share for 2009.

Sagot :

Answer: A. 0.89

B. 0.78

Explanation:

Outstanding common shares = 200,000

Additional shares = 50,000

Dividend = 0

Par value of preferred stock = $100

Net income = $300,000

a. The basic earnings per share will be:

= (Net income - Preferred dividend) / Weighted average number of shares

= [300000 - (20000 × $100 × 5%)] / (200,000 + 50,000 × 6/12)

= [300,000 - 100,000) / (200000 + 25000)

= 200,000 / 225,000

= 0.89

The diluted earnings per share will be:

= 300,000 / (200000 + 50000 × 6/12) + (20000 × 8)

= 300,000 / 200,000 + 25000 + 160,000

= 300,000 / 385,000

= 0.78

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