Question

At December 31, 2021, MedX Corporation had outstanding 200,000 shares of common stock. Also outstanding were 120,000 shares of preferred stock convertible into 64,000 common shares and $1,800,000 of 10% bonds convertible into 27,000 common shares. MedX's net income for the year ended December 31, 2021, is $1,040,000. The income tax rate is 25%. MedX paid dividends of $2 per share on its preferred stock during 2021. Required: Compute basic and diluted earnings per share for the year ended December 31, 2021, considering possible antidilutive effects

Answer 1

Answer: basic earning per share = $4.00

Diluted Earning per share = $4.04 per share

Explanation:

Based on the information given in the question, the basic and diluted earnings per share for the year ended December 31, 2021, considering possible antidilutive effects will be calculated as:

The Basic earnings per share will be calculated as:

M= (Net income - preferred dividend) / Outstanding common stock

= ($1040000 - ($120000 × 2)) / 200000

= ($1,040,000 × $240,000) / 200,000

= $800000 ) 200000

= $4.00 per share

The weighted average outstanding share for the diluted will be:

= 200,000 + 64000 + 27000

= 291,000 shares

Then, the diluted earnings per share will be:

= (1040000 + 1800000 × 10% × 75%)/291000

= $4.04 per share