Multiple Potentially Dilutive Securities
The company reported net income of $220,000 for the year and 100,000 shares of common stock were outstanding during the year. The income tax rate is 40%. The company has the following potentially dilutive securities. Assume that each of the securities was issued on or before January 1. Compute (1) basic EPS and (2) diluted EPS.
(a) Stock options that allow employees to purchase 30,000 shares of common stock. The option exercise price is $10 per share. The average stock price for the year was $7.
(b) 10,000 convertible preferred shares (cumulative, 5%, $100 par). Each preferred share is convertible into three shares of common stock.
(c) 500 convertible bonds ($1,000 face value,10%).Each bond is convertible into 50 shares of common stock.