Chapter 16, Problem 24E

To determine

Earnings per share: Earnings per share (EPS) indicates the income earned per share of common stock. EPS is calculated as Basic EPS and Diluted EPS. The income for EPS is calculated by subtracting the preference dividends. The income is divided by weighted-average common shares outstanding. This is Basic EPS. For the income statement presentation of earnings per share any losses from discontinued operations should be deducted from the income from discontinued operations to arrive at the net income.

(a) To prepare: To prepare a schedule to compute both the basic and diluted earnings per share.

Given information: Debenture value: $5,000,000.

Par value: $1,000.

Rate: 7%.

Conversion ratio: 14:1.

Increase: 18:1.

Bond sale value: $98.

Tax rate: 35%.

Net income: $9,500,000.

Shares: 2,000,000.

To determine

(b) To determine: To discuss how the schedule would differ if the security was convertible preferred stock.