Diluted EPS and a Loss
The company reported a net loss of $300,000 for the year and 100,000 shares of common stock were outstanding during the year. The income tax rate is 30%. For each of the following potentially dilutive securities, compute (1) basic EPS and (2) diluted EPS. Assume that each of the securities was issued on or before January 1. Treat each security independently; in other words, when doing the EPS computations for one security, assume that the others do not exist.
(a) 10,000 convertible preferred shares (cumulative, 5%, $100 par). Each preferred share is convertible into three shares of common stock.
(b) 500 convertible bonds ($1,000 face value,10%).Each bond is convertible into 25 shares of common stock.
(c) Stock options that allow employees to purchase 40,000 shares of common stock. The option exercise price is $10 per share. The average stock price for the year was $16.