AuthorTopic: FSA Question
gigipremi
@2014-05-18 19:17:47
The Engelhardt Company reported net income of $11,560 and had 2,000 shares of common stock outstanding for the entire year. During 2007, 1,000 shares of 10%, $100 par preferred stock was outstanding. Also during 2007, Engelhardt issued 60, $1,000, 8% bonds for $60,000. Each bond is convertible into 100 shares of common stock. The tax rate is 40%.

Compute Engelhard's basic and diluted EPS.
Perfect
@2014-05-27 15:31:29
Number of common shares outstanding: 2,000
Net income = 11,560
Preferred stock = 1,000 x 100 = 100,000
Dividend: 100,000 x.1 = 10,000
Debt 60 x 1000 = 60,000
Interest on debt = 60,000 x .08 = 4,800
After tax interest = 4800x.60 = 2880

Basic EPS = 11,560 10,000/ 2000 = .78
Dilutive EPS = 11,560 10,000 +2880 /2,000 + 6,000 = .555

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