Question

Ahnberg Corporation had 680,000 shares of common stock issued and outstanding at January 1. No common shares were issued during the year, but on January 1, Ahnberg issued 300,000 shares of convertible preferred stock. The preferred shares are convertible into 600,000 shares of common stock. During the year Ahnberg paid $180,000 cash dividends on the preferred stock. Net income was $2,152,000.
What were Ahnberg's basic and diluted earnings per share for the year?

Answer 1

Answer:

EPS is $2.9 per share

Diluted EPS is $1.54 per share

Explanation:

Basic Earning per share is calculated dividing Earning for the year excluding preferred dividend by weighted average number of shares.

Basic EPS = (Net Income - Preferred dividends) / Weighted Average numbers of share

Basic EPS = ($2,152,000 - $180,000) / 680,000 = $2.9 per share

Diluted earning per share is calculated by adjusting all the convertible share options or securities in the outstanding share.

Diluted EPS = (Net Income - Preferred dividends) / Diluted numbers of share

Diluted EPS = ($2,152,000 - $180,000) / ( 680,000 + 600,000 )

Diluted EPS = $1.54 per share