Question

Question 2 --/8 View Policies Current Attempt in Progress Blossom Horizon Corp had the following items, all of which were outstanding throughout the entire fiscal year ending September 30, 2021: • 720,000 common shares • 330,000 $3 cumulative, no-par value preferred shares • Options to purchase 90,000 common shares at $13 per share. The average market price of Blossom's common shares during the year was $20 per share. None of the options were exercised or expired during fiscal 2021 • 9% bond with a face value of $1,800,000, convertible to 47,000 common shares. Blossom's net income for fiscal 2021 was $8,118,000, and its tax rate was 15%. Preferred dividends had been paid in all previous fiscal years. Calculate the income effect of the dividends on preferred shares. Dividends on preferred shares e Textbook and Media

Please answer the question according to the above format. Thank you!

Answer 1

Blossom Horizon Corp has the outstanding items of the financial year September 30,2021 are as follows:
720,000 Common shares
330,000 $3 cumulative, no -par value preferred shares
Options to purchase 90,000 common shares at $13 per share. However, the options were not exercised.
9% bond with a face value of $1,800,000, convertible to 47,000 common shares
In all previous fiscal years Blossom has given preference dividend to the preference shareholders
Tax rate is 15%
Dividend on preference shares =	Net income after tax X rate of Preference shares
=	6900300 X 3%
=	207009
Basic Earning per share = Net income after tax after Preference dividends/ Total Common shares
= 6693291/767000
= $ 8.73
Particulars	Amount $
Blossom Horizon Corp net income for fiscal year 2021	8118000
(-) Tax rate @15% on net profits	1217700
Net income after tax	6900300
(-)Dividend on preference shares (3% on 6900300)	207009
Net income after tax after Preference dividends	6693291
Basic Earning per share	8.73
Calculation of the after tax interest paid on the 9% bonds
Particulars	Amount $
Blossom Horizon Corp net income for fiscal year 2021	8118000
Interest @9%	730620
Tax rate @15% on 730620	109593
After tax interest paid on 9% bonds	621027
Calculation of total common shares
Particulars	shares
Common shares	720000
9% bond with a face value of $1,800,000, convertible to 47,000 common shares	47000
Total Common shares	767000
Incremental per share effect for 9 % bonds
Potentially diluted security	Incremental Numerator Effect	Incremental Denomainator effect	Earning Per share
9% bonds	7521327	767000	9.806
Incremental Numerator Effect	Profit of the company+ after tax interest on 9% bonds
	6900300 + 621027
	7521327
Incremental Denominator effect	Number of common shares outstanding during the fiscal period+ All dilutive potential shares
	767000
Calculations of Proceeds from assumed exercise of options	Amount $
Average Market price is $20 per share	1800000
Purchase of 90,000 common shares @ $13 per share	1170000
Net proceeds	630000
Calculation of Incremental shares outstanding upon the exercise of option
Common shares outstanding during the period	720000
Exercise of option	90000
Conversion of bond into shares	47000
Total common shares	857000
Rank the potential diluted securities from most diluted to least diluted
9% bonds	Anti- diluted
Calculation of Blossom's diluted Earning per share of the year	Numerator	Denominator	EPS
	7228791	857000	8.43