Convertible Preferred Stock Issued During the Year
Refer to Practice 18–7. Assume that the convertible preferred stock was issued on February 1.
Also assume that the issuance agreement stipulates that the preferred stockholders are entitled to their entire preferred dividend for the year even though the shares are issued on February 1. Compute diluted earnings per share, assuming that (1) each preferred share was convertible into five shares of common stock and (2) each preferred share was convertible into one share of common stock.
Practice 18–7
Diluted EPS and Convertible Preferred Stock
The company had 100,000 shares of common stock outstanding throughout the year. In addition, as of January 1, the company had issued 10,000 convertible preferred shares (cumulative, 5%, $100 par). The company has no other potentially dilutive securities. Net income for the year was $200,000. Compute diluted earnings per share, assuming that (1) each preferred share was convertible into four shares of common stock and (2) each preferred share was convertible into one share of common stock.