Question

WildhorseCorporation is preparing earnings per share data for 2020. The net income for the year ended December 31, 2020 was $410,000 and there were 59,700 common shares outstanding during the entire year. Wildhorse has the following two convertible securities outstanding:

10% convertible bonds (each $1,000 bond is convertible into 20 common shares)		$100,000
3% convertible $100 par value preferred shares (each share is convertible into 2 common shares)		$53,000

Both convertible securities were issued at face value in 2017. There were no conversions during 2020, and Wildhorse’s income tax rate is 22%. The preferred shares are cumulative. For simplicity, ignore the requirement to record the debt and equity components of the bonds separately.

Calculate the income effect of the dividends on preferred shares.

Dividends on preferred shares

$enter the Dividends on preferred shares in dollars

eTextbook and Media

Part 2

Calculate Wildhorse’s basic earnings per share for 2020. (Round answer to 2 decimal places, e.g. 15.25.)

Basic earnings per share

$enter Basic earnings per share in dollars rounded to 2 decimal places

Part 3

Incorrect answer iconYour answer is incorrect.

Calculate the after-tax interest paid on the 10% bonds.

After-tax interest

$enter the After-tax interest in dollars

Part 4

Incorrect answer iconYour answer is incorrect.

Determine an incremental per share effect for each potentially dilutive security. (Round earnings per share to 2 decimal places, e.g. 15.25.)

Potentially dilutive security		Incremental Numerator Effect		Incremental Denominator Effect		EPS
Bonds 10%		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount rounded to 2 decimal places

eTextbook and Media

Part 5

Determine an incremental per share effect for each potentially dilutive security. (Round earnings per share to 2 decimal places, e.g. 15.25.)

Potentially dilutive security		Incremental Numerator Effect		Incremental Denominator Effect		EPS
3% Preferred shares		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount rounded to 2 decimal places

eTextbook and Media

Part 6

Calculate Wildhorse’s diluted earnings per share for 2020. (Round earnings per share to 2 decimal places, e.g. 15.25.)

		Numerator		Denominator		EPS
Basic		$enter a dollar amount		enter a dollar amount		$enter a dollar amount rounded to 2 decimal places
select an item Preferred sharesBonds		enter a dollar amount		enter a dollar amount
Sub Total		enter a subtotal of the two previous amounts		enter a subtotal of the two previous amounts		enter a dollar amount rounded to 2 decimal places
select an item BondsPreferred shares		enter a dollar amount		enter a dollar amount
		$enter a total amount		enter a total amount		$enter a dollar amount rounded to 2 decimal places

Recalculate Wildhorse’s basic and diluted earnings per share for 2020, assuming instead that the preferred shares pay a 15% dividend. Calculate the income effect of the dividends on preferred shares.

Dividends on preferred shares

$enter the Dividends on preferred shares in dollars

Calculate Wildhorse's basic earnings per share for 2020. (Round answer to 2 decimal places, e.g. 15.25.)

Basic earnings per share

$enter Basic earnings per share in dollars rounded to 2 decimal places

Determine an incremental per share effect for the 15% preferred shares. (Round earnings per share to 2 decimal places, e.g. 15.25.)

Potentially dilutive security		Incremental Numerator Effect		Incremental Denominator Effect		EPS
15% Preferred shares		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount rounded to 2 decimal places

The 15% shares are select an option anti-dilutivedilutive .

eTextbook and Media

Incorrect answer iconYour answer is incorrect.

Calculate Wildhorse's dilutive earnings per share for 2020. (Round answer to 2 decimal places, e.g. 15.25.)

Diluted earnings per share

$enter Diluted earnings per share in dollars rounded to 2 decimal places

Answer 1

1	Dividend on Preference shares?
	Rate	3%
	Dividend	$     1,590.00
2	Wildhorse's basic Earning per share for 2020
	=Income after tax after prefernce dividend/no of common shares
	Profit before tax	$ 410,000.00
	Tax @ 22%	$   90,200.00
	Pat	$ 319,800.00
	Preference dividend	$     1,590.00
	Income available for Common stock holders	$ 318,210.00
	No of common stock outstanding	59700
	Beps	$             5.33
3	After Tax interest on 10 % bonds
	7800
4	when Bonds are converted
	Total number of share (converted)	2000
	Outstanding shares	59700
	Total shares outstanding after conversion	61700
	Profit before tax	$ 410,000.00
	Add: interest saved on bonds	$   10,000.00
	Profit before tax(adjusted)	$ 420,000.00
	Tax @ 22%	$   92,400.00
	Pat	$ 327,600.00
	Preference dividend	$     1,590.00
	Income available for Common stock holders	$ 326,010.00
	No of common stock outstanding	61700
	Beps	$             5.28
5	when preference shares are converted
	Total number of share (converted)	1060
	Outstanding shares	59700
	Total shares outstanding after conversion	60760
	Diluted BEPS	$             5.26
	=Profit after tax/no of shares outstanding