Computing Basic and Diluted Earnings per ShareZeller Corporation began 2015 with 120,000 shares of common stock and 16,000 of convertible preferred stock outstanding. On March 1 an additional 10,000 shares of common stock were issued. On August 1, another 16,000 of common stock was issued. On November 1, 6,000 shares of common stock were acquired from the treasury. The preferred stock has a $2 corporate’s 2015 net income is $501,000. a. Compute basic earnings per share for 2015b. Compute diluted earnings per share for 2015c. If the preferred stock were not convertible, Zeller Corporation would have a simple capital structure

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Asked Nov 26, 2019
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Computing Basic and Diluted Earnings per Share

Zeller Corporation began 2015 with 120,000 shares of common stock and 16,000 of convertible preferred stock outstanding. On March 1 an additional 10,000 shares of common stock were issued. On August 1, another 16,000 of common stock was issued. On November 1, 6,000 shares of common stock were acquired from the treasury. The preferred stock has a $2 corporate’s 2015 net income is $501,000.
a. Compute basic earnings per share for 2015
b. Compute diluted earnings per share for 2015
c. If the preferred stock were not convertible, Zeller Corporation would have a simple capital structure

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Expert Answer

Step 1

Determine weighted average common share.

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Weighted average common shares [120,000x12/12]+[10,000x10/12]+[16,000x5/12]- [6,000x2/12] Weighted average common shares 134,000 shares

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Step 2

a.

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Basic earnings per share (Net income-Preferred dividend)/Weighted average common share Basic earnings per share ($501,000-($2x$16,000))/134,000 shares Basic earnings per share $3.5 per share

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Step 3

b.

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Total shares, if preferred shares are converted to common shares-16,000+134,000 150,000 shares Diluted earnings per share Net income/ Total shares Diluted earnings per share $501,000/150,000 shares Diluted earnings per share $3.4 per share

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