Answer:
Diluted earnings per share for 2020. is 93 cents
Explanation:
Diluted Earnings per share shows the<em> future position</em> of the Earnings per shareholders once the potential shareholders begin exercising their rights.
Potential Shareholders exists due to Financial Instruments that <em>might be converted into ordinary shares</em>. Examples are Convertible Bonds, Options, Convertible Preference shares.
<em>Step 1 Calculate Basic Earnings Per Share</em>
Basic Earnings Per Share = Earnings Attributable to Ordinary Shareholders / Weighted Average Number of Ordinary Shares in Issue during the period.
<u>Profits attributable to Ordinary Shareholders :</u>
Earnings ( $14,700 - $6,900) $7,800
<em>Less</em> After tax Interest on Bonds (60×$1,000×8%×80%) ( $3,840)
Profits attributable to Ordinary Shareholders $ 3960
<u>Weighted Average Number of Ordinary Shares</u>
Common stock outstanding 2,400 shares
Basic Earnings Per Share = $ 3960/ 2,400
= 165 cents
<em>Step 2 Calculate Diluted Earnings Per Share</em>
Diluted Earnings Per Share = Adjasted Basic Earnings per Share Earnings/ Adjasted Number of Ordinary Shares
<em></em>
<u>Adjusted Basic Earnings per Share Earnings</u>
Profits attributable to Ordinary Shareholders $ 3960
Add Savings on Interest (60×$1,000×8%×80%) $3,840
<em>Adjusted Basic Earnings per Share Earnings $7,800</em>
<u>Adjusted Number of Ordinary Shares</u>
Common stock outstanding 2,400 shares
Add 60× 100 shares of Convertible Bonds 6,000 shares
<em>Adjusted Number of Ordinary Shares 8,400 shares</em>
Diluted Earnings Per Share = $7,800/8,400 shares
= 93 cents
