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Stainless Corporation had net income of $7,800,000 in 2015
Stainless Corporation had net income of $7,800,000 in 2015. The company had 500,000 shares of
$4 par value common stock and 70,000 shares of 8%, $100 par, preferred stock outstanding
throughout the year. Each share of preferred stock is both cumulative and convertible. Each share
of preferred stock is convertible into two shares of common stock. Compute the following for
2015:
(a) The number of shares to be used in computing basic earnings per share.
(b) The number of shares to be used in computing diluted EPS.
(c) Basic earnings per share.
Expert Solution
1.)
The number of shares to be used in computing basic price per share is 500000. Because for basic earning per share no. of share will be common shares outstanding all over the year.
2.)
No. of shares to be used in computing diluted price;
Diluted earning per share= Common shares+ (Preference shares+ Equivalent common shares)
= 500000+ (700000+ (70000* 2))
= 500000+ 140000
= 640000
3.)
Basic earning per share= Net income/ Common shares
= 7800000/ 500000
= 15.60
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