Question

Skysong Corporation reported Long-Term Liabilities and Shareholders' Equity in its December 31, 2020 balance sheet as follows: $7,500,000 $4,600,000 Long Term Liabilities: Bonds Payable 9% interest, convertible to 25 common shares/$1,000 bond Bonds Payable 5% interest, convertible to 30 common shares/$1,000 bond Shareholders' Equity: Class A Preferred shares $3.90 cumulative preferred share convertible into 7 common shares, 102,000 authorized, issued and outstanding Class B Common shares Unlimited number authorized 4,820,000 issued and outstanding $5,000,000 $28,920,000 All of the above reported bonds payable, preferred shares and common shares were outstanding throughout the entirety of fiscal 2020. No transactions involving the bonds payable, preferred shares or common shares occurred during fiscal 2020, except for interest on the bonds payable. The bonds payable were all issued and sold at par. Skysong also had Class B common stock options to purchase 280,000 common shares at $10.00 per share outstanding throughout fiscal 2020. No stock options were exercised during fiscal 2020. The fair market value of Skysong's common shares was $15.00 per share throughout the entirety of fiscal 2020. Skysong's income tax rate is 37%. The weighted average of common shares outstanding for 2020 was 4,820,000 common shares, and Skysong earned net income of $11,329,560.

Answer 1

1 ) dividend on preferential shares. = 102200$

2 ) Basic EPS for 2020. =

Net profit available to common stock ÷

Weighted Avg common shares outstanding

=. 11,329,560 $ - 102200$. = 2.33$/share

4820000$

3 ) After Tax interest on 9% bonds.

Interest payment. = 675000$

Less : Tax @37% = ( 249750$ )

Interest after tax. =. 425250$

Incremental numerator. =. 425250$

Incremental denominator. =. 187500 shares

Incremental EPS. = 2.268$/ share.

4 ). After Tax interest payable :

Interest payamnet. @ 5%. = 230000$

Less : Tax. @ 37%. =. (85100$)

Interest after Tax. = 144900$

Incremental numerator. =. 144900$

Incremental Denominator. =. 138000shares

Incremental EPS. = 1.05$/share.

5 ). Preferred dividend :

Incremental numerator. = 102200$

Incremental denominator. = 714000 shares

Incremental EPS. = 0.143$/share.

6)

Proceeds from Exercising the Shares. = 2800000$

( 280000shares *10$/ share. )

Incremental shares. = 280000 shares

7 ) Ranking the potential dilutive shares :

9% bonds. = Rank - 4

5% bonds. = Rank -3

Class -A preferred shares = Rank - 2

Options. = Rank. -1.

8 ) Diluted EPS.

Incremental numerator = 11227360$+425250$+102200+ 144900$+0 = 11899710$

Incremental Denominator = 4820000+714000+187500+ 138000 + 280000. = 6139500 shares

Diluted EPS. = 1.938$/share.