Question

5. (15 pts) Lancaster Company had earnings net of tax but before extraordinary items of $500,000. They had an extraordinary loss net of tax of $100,000. Lancaster had a weighted average number of shares of 200,000 common shares. They also had 10,000 shares of convertible $100 par preferred stock, 6%, with one year's dividend in arrears, convertible into 20,000 shares of common stock. Their tax rate is 40%. Show in good format all earnings per share calculations necessary.

Answer 1

Particulars	Amount
Net Income After Taxes but before extraordinary items	$500,000
Extraordinary gain or loss	($100,000)
Income tax on extraordinary gain	0
NET INCOME (LOSS)	$400,000
Less: Preference dividends (10,000 * $100 * 6%)	$60,000
Net income available to common shareholders	$340,000
Weighted average number of shares outstanding	200,000
Basic EPS (income / number of shares)	$1.70
Preferred shares converted to equity shares	20000
Total Number of shares outstanding (Number of shares outstanding + convertible preference shares	220,000
Net Income	$400,000
Diluted EPS	$1.82