Earnings per Share—Complex Capital Structure
At December 31, 2008, Hemington Company had 320,000 shares of common stock outstanding. Hemington sold 80,000 shares on October 1, 2009. Net income for 2009 was $1,985,000; the income tax rate was 35%. In addition, Hemington had the following debt and equity securities on its books at December 31, 2008.
(a) 30,000 shares of $100 par, 8% cumulative preferred stock.
(b) 25,000 shares of 10% convertible cumulative preferred stock, par $100, sold at 110. Each share of preferred stock is convertible into three shares of common stock.
(c) $1,500,000 face value of 9% bonds sold at par.
(d) $2,500,000 face value of 7% convertible bonds sold to yield 8%. Unamortized bond discount is $150,000 at December 31, 2008. Each $1,000 bond is convertible into 22 shares of common stock. Also, options to purchase 20,000 shares of common stock were issued May 1, 2009. Exercise price is $20 per share; market value at date of option was $19; average market value May 1 to December 31, 2009, $25.
Instructions: For the year ended December 31, 2009, compute basic and diluted EPS.