Lerner Co. had 200000 shares of common stock, 20000 shares of convertible preferred stock, and $600000 of 10% convertible bonds outstanding during 2021. The preferred stock is convertible into 40000 shares of common stock. During 2021, Lerner paid dividends of $0.55 per share on the common stock and $1.80 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2021 was $360000 and the income tax rate was 30%. Basic earnings per share for 2021 is (rounded to the nearest penny)

Question

Business

Sienna Bond

24 March, 05:41

Lerner Co. had 200000 shares of common stock, 20000 shares of convertible preferred stock, and $600000 of 10% convertible bonds outstanding during 2021. The preferred stock is convertible into 40000 shares of common stock. During 2021, Lerner paid dividends of $0.55 per share on the common stock and $1.80 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2021 was $360000 and the income tax rate was 30%. Basic earnings per share for 2021 is (rounded to the nearest penny)

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Gabrielle Webster · Answer 1

Basic EPS is $1.62

Explanation:

Basic earnings per share = (Net income-preferred dividends) / weighted average number of shares

net income is $360,000

preferred dividends=$1.80*20,000=$36000

Weighted average number of common stock is 200,000

Basic Earnings Per Share = ($360,000-$36000) / 200,000

=$1.62

From the computation the basic EPS year 2021 is $1.62

This implies that each share had earnings of $1.62 during year from which $0.55 was paid out as dividends and the balance $1.07 was reinvested in the business for further growth

Christina Duarte · Answer 2

Basic EPS=$1.08

Explanation:

Basic EPS = Net income after tax-preferred shares' dividend/Weighted average of outstanding shares

Net income after tax=$360,000*.7=$252,000

Dividend to preference shareholders=20,000*1.8=$36,000

Weighted average shares outstanding=200,000

Basic EPS = ($252,000-$36,000) / 200,000

Basic EPS=$1.08