Comprehensive Calculation of Diluted EPS
Refer to Practice 18–16. Assume that the company issued 25,000 new shares of common stock on June 1 and that the company issued a 2 for 1 stock split on December 1.Compute (1) basic EPS and (2) diluted EPS. (Note: The shares in the option, convertible preferred, and convertible bond descriptions are in terms of January 1 shares. The number of shares in each case—and the exercise price in the case of the options—would be adjusted to reflect the December 1 2 for 1 split. The average stock price of $18 for the year does not reflect the 2 for 1 stock split.)
Practice 18–16
Multiple Potentially Dilutive Securities
The company reported net income of $300,000 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 $18.
(b) 10,000 convertible preferred shares (cumulative, 5%, $100 par). Each preferred share is convertible into four shares of common stock.
(c) 500 convertible bonds ($1,000 face value,10%).Each bond is convertible into 40 shares of common stock.