Question

The following is pertinent information for Epic Industries:

1. Year-end is December 31.

2. 4% convertible bonds of $8,000,000 were issued at par two years ago. Each $1,000 bond is convertible into 30 shares of common stock.

3. 50,000 shares of preferred stock was issued last year: 5%, $100 par value, cumulative. Last year's dividend was paid, but no dividends were declared in the current year.

4. 4,000,000 shares of $1 par common stock were outstanding at year-end. 2,000,000 of these shares were issued on July 1 of the current year.

5. Current year earnings are $2,700,000.

6. The income tax rate is 20%.

Instructions:

Fill in the blank boxes of the table below. (Round EPS to the nearest penny.)

	BEPS		DEPS
Net income
PS dividends
Bond interest expense, net of tax
Numerator
Weighted average # of CS outstanding
Additional CS issued if bonds are converted
Denominator
EPS

Answer 1

BEPS		DEPS
Net income	2700000	2700000
LESS ; PS dividends	250000	250000
ADD ; Bond interest expense		320000
LESS ; TAX SAVINGS ON BONDS		64000
Numerator	2450000	2706000
Weighted average # of CS outstanding	3000000	3000000
Additional CS issued if bonds are converted		240000
Denominator	3000000	3240000
EPS	0.82	0.83

Dat Preference dividend - 50000 XIDO X 54. Interest on bonds = 8000000 x 4% 3 2000 o Tax Savings = 3200004 20% = 64000 No. of shares converted 8000000 x 30 1000 Diluted shares - 240000 Shares No. of share outstanding Bengning of the year. 40.00000 - 2000000 - 2000000 Sharu Basic EPS tveighted Shares outstanding : 20,00.000 X + 40000 boxes = 1000000 + 2000000 - 3000000 Share

Page No. Diluted EPS > weighted Average Share outstanding 3 3000000 + Diluted Shares $_3.000000 + 240.000 e 3940000 Share RAJADHANI