Answer:
a. $3.64
b. $3.56
Explanation:
Basic Earning per Share = Earnings Attributable to Holders of Common Stocks / Weighted Average Number of Common Shares
Earnings Attributable to Holders of Common Stocks Calculation :
Net income $473,800
Less Interest on bonds after tax ($1,840,000×6%×80%) ($88,320)
Earnings Attributable to Holders of Common Stocks $385,480
Weighted Average Number of Common Shares Calculation:
Common Shares 103,000
Weighted Average Number of Common Shares 103,000
Basic Earning per Share = $385,480/103,000
= $3.74
Diluted Earning per Share = Adjusted Earnings Attributable to Holders of Common Stocks / Adjusted Weighted Average Number of Common Shares
Adjusted Earnings Attributable to Holders of Common Stocks Calculation:
Earnings Attributable to Holders of Common Stocks $385,480
Add Back Interest on bonds after tax ($1,840,000×6%×80%) $88,320
Earnings Attributable to Holders of Common Stocks $473,800
Adjusted Weighted Average Number of Common Shares Calculation:
Weighted Average Number of Common Shares 103,000
Add Convertible Bonds (1840,000/1000×16) 26,440
Adjusted Weighted Average Number of Common Shares 129,880
Diluted Earning per Share = $473,800/ 129,880
= $3.64
