Question

Ahnberg Corporation had 660,000 shares of common stock issued and outstanding at January 1. No common shares were issued during the year, but on January 1, Ahnberg issued 280,000 shares of convertible preferred stock. The preferred shares are convertible into 560,000 shares of common stock. During the year Ahnberg paid $168,000 cash dividends on the preferred stock. Net income was $1,950,000.
What were Ahnberg's basic and diluted earnings per share for the year? (Round your answers to 2 decimal places.)

Answer 1

Answer:

Basic Earnings per share=$2.70

Diluted earnings per share(EPS)=$1.50

Explanation:

Earnings per share is the total earnings attributable to ordinary shareholders divided by the number of units of common stock .

It represents profit per unit of stock unit held by common stock holder investor. The higher, the more profitable and the better.

Earnings per share = Earnings attributable to ordinary shareholders / units of common stock

Earnings attributable to ordinary shareholders= Net income after tax - preference dividend

Net Income for the year   $1,950,000

Preference Dividend  $168,000

Earnings attributable to ordinary shareholders for 2021= 1,950,000-168,000=1,782,000

Basic Earnings per share=$1,782,000/660,000shares=$2.70

Basic Earnings per share=$2.70

Diluted earnings per share(EPS)=Earnings attributable to ordinary shareholders/ Total number of shares assuming conversion

Diluted earnings per share(EPS)=$1,782,000/(660,000+560,000) units

Diluted earnings per share(EPS)=$1.50