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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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At December 31, 2019, Talbot Corporation had 90,000 shares of common stock and 20,000 shares of convertible preferred stock outstanding, in addition to 9% convertible bonds payable in the face amount of $2,000,000. During 2019, Talbot paid dividends of $2.50 per share on the preferred stock. The preferred stock is convertible into 20,000 shares of common stock. The 9% convertible bonds are convertible into 30,000 shares of common stock. Net income for 2019 was $970,000. Assume an income tax rate of 30%. How much is the diluted earnings per share for the year ended December 31, 2019?

  1. a. $7.83
  2. b. $8.82
  3. c. $9.35
  4. d. $10.22

To determine

Ascertain the diluted earnings per share for the year ended December 31, 2019.

Explanation

Retained earnings:

Retained earnings are that portion of profits which are earned by a company but not distributed to stockholders in the form of dividends. These earnings are retained for various purposes like expansion activities, or funding any future plans.

Diluted earnings per share =Net income+ (9% Convertible bonds payable)Weighted average number of shares=$970,000+([Face value ×Interest rate]×(Corporation income tax rate))90,000+20,000+30,000

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