SignatureLeprechan Inc. had the following stock and convertible securities outstanding on January 1:• 750,000 shares of $3 par common stock• 13,000 shares of 6% $75 par cumulative convertible preferred stock• Stock options for the purchase of 60,000 common shares at $20 per shareThe following stock transactions occurred during the year:• March 1: purchased 45,000 treasury shares with cash• June 1: stock split (2:1)• November 1: issued an additional 240,000 shares of common stock for cashThe preferred stock is convertible into 200,000 shares of common stock (after adjustment for the stocksplit.) The average price of the common stock during the year was $30 per share. None of the securitieswere converted during the year.Net income was $2,800,000, and the company's tax rate is 40%.Required: Calculate basic earnings per share:Calculate fully diluted earnings per share:458

Answered: Leprechan Inc. had the following stock…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter16: Retained Earnings And Earnings Per Share

Section: Chapter Questions

Problem 10MC

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Signature
Leprechan Inc. had the following stock and convertible securities outstanding on January 1:
• 750,000 shares of $3 par common stock
• 13,000 shares of 6% $75 par cumulative convertible preferred stock
• Stock options for the purchase of 60,000 common shares at $20 per share
The following stock transactions occurred during the year:
• March 1: purchased 45,000 treasury shares with cash
• June 1: stock split (2:1)
• November 1: issued an additional 240,000 shares of common stock for cash
The preferred stock is convertible into 200,000 shares of common stock (after adjustment for the stock
split.) The average price of the common stock during the year was $30 per share. None of the securities
were converted during the year.
Net income was $2,800,000, and the company's tax rate is 40%.
Required: Calculate basic earnings per share:
Calculate fully diluted earnings per share:
458

Expert Solution

Step 1

Earnings per share (EPS) is calculated by dividing a company's profit by the number of shares of common stock outstanding. A company's earnings per share (EPS) are typically adjusted for unique items and potential share dilution. Earnings per share are calculated by dividing net income (also known as profits or earnings) by the number of shares available. A more precise calculation accounts for shares created through options, convertible debt, or warrants by adjusting the numerator and denominator. It becomes more relevant when the numerator of the equation is adjusted for continuing operations.

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