Question

During 2018, Mayfair Enterprises had the following securities outstanding: 1. 250,000 shares of common stock with an average market price of $25 per share. 2. 9.5% convertible preferred, which had been sold at its par value of $100. The preferred stock is convertible into three shares of common stock and 3,000 preferred shares are currently outstanding. During 2018, Mayfair Enterprises earned net income after income taxes of $3.2 million. Calculate the (a) basic earnings per share and (b) diluted earnings per share for Mayfair Enterprises for 2018.

Answer 1

Answer and Explanation:

The computation of the earning per share and the diluted per share is shown below:

But before that following calculations need to be computed

Preference dividend is

= 3,000 shares × $100 × 9.5%

= $28,500

a. Now the earning per share is

= (Net income - preference dividend) ÷ (number of weighted outstanding shares)

= ($3.2 million - $28,500) ÷ (250,000 shares)

= $12.69 per share

b. Now diluted per share is

= Earning after tax ÷ (number of weighted outstanding shares)

= $3.2 million ÷ (250,000 shares + 3,000 × 3)

= $12.36 per share