Woolery, Inc. had 50,000 shares of common stock outstanding at January 1, 2021. On March 31, 2021, an additional 12,000 shares were sold for cash. Woolery also had $4,000,000 of 6% convertible bonds outstanding throughout the year. The bonds are convertible into 40,000 shares of common stock. Net income for the year was $350,000. The tax rate is 25%. Required: Compute basic and diluted earnings per share for the year ended December 31, 2021. (Round your answers to 2 decimal places.)

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andromache andromache · Answer 1 · 2020-05-12T05:38:22+02:00

Answer:

Basic earning per share = $5.93

Diluted earning per share = $5.35

Explanation:

As per the data given in the question,

Basic EPS = $350,000 ÷ (50,000 + 12,000 × 9÷12)

= $5.93

Diluted EPS = (Net income - Preferred dividends) ÷ (weighted average shares outstanding + conversion of diluted security)

Where, Net income = $350,000 + (4,000,000 × 6%×75%)

= $530,000

Weighted average share = (50,000 + (12,000×9÷12))

=$59,000

Therefore,

Diluted EPS = $530,000 ÷ (59,000 + 40,000)

= $5.35