Question

Problem 16-08 Your answer is partially correct. Try again. The information below pertains to Wildhorse Company for 2021. Net income for the year $1,250,000 7% convertible bonds issued at par ($1,000 per bond); each bond is convertible into     30 shares of common stock 2,070,000 6% convertible, cumulative preferred stock, $100 par value; each share is convertible      into 3 shares of common stock 4,120,000 Common stock, $10 par value 6,060,000 Tax rate for 2021 20% Average market price of common stock $25 per share There were no changes during 2021 in the number of common shares, preferred shares, or convertible bonds outstanding. There is no treasury stock. The company also has common stock options (granted in a prior year) to purchase 75,300 shares of common stock at $20 per share. (a) Compute basic earnings per share for 2021. (Round answer to 2 decimal places, e.g. $2.55.) Basic earnings per share $ (b) Compute diluted earnings per share for 2021. (Round answer to 2 decimal places, e.g. $2.55.) Diluted earnings per share $ Click if you would like to Show Work for this question: Open Show Work

Answer 1

Answer with working notes is given below

a) Basic Earning per share for 2021 1 $1.65 Net Income Less: Preference dividend Earning to Common shareholders Number of Common shares Basic Earning per Share $1,250,000 $247,200 6% of $4,120,000 | $1,002,800 606,000 ($6,060,000/$10) $1.65 ($1,002,800/606,000) b) Diluted Earnings per share for 2021 $1.64 Net Income Less: Preference dividend Add: Interest on Bond (net of tax) Adjusted Earnings Total number of shares Diluted Earning per share $1,250,000 $247,200 6% of $4,120,000 $115,920 ($2,070,000 * 7%)*(1-20%) $1,118,720 683,160 $1.64 606,000 Total Shares for Diluted EPS Common shares Potential dilutive Common shares Shares under warrant Convertible bonds Total Shares for Diluted EPS 15,060 ($25-$20)/$25*75,300 62,100 ($2,070,000/$1,000)*30 683,160