earnings per share mdash multiple convertible securities kishkumen company had the f 692884

Earnings per Share—Multiple Convertible Securities

Kishkumen Company had the following capital structure at December 31, 2008 and 2009:

The following additional information is available.

(a) The conversion terms of the preferred stock and bonds at January 1, 2009,were as follows:

Preferred stock, five shares of common for each share of preferred; convertible bonds, 38 shares of common for each $1,000 bond. These terms are to be adjusted for any issued stock dividends or stock splits.

(b) On May 1, 2009, Kishkumen sold an additional 70,000 shares of common stock, and on August 1, 2009, a 10% stock dividend on common shares was declared.

(c) On October 1, 2009, 13,000 shares of preferred stock were converted to 71,500 shares of common stock (5.5 shares common for each share of preferred). The preferred stock was issued at $100 par in 2005.

(d) On December 1, 2009, 25% of the convertible bonds were converted. The bonds were issued at par in 2008.

(e) On December 31, 2009, Kishkumen declared and paid a $7 per share dividend on outstanding preferred stock. Income for the year was $2,300,000.

(f) Stock options (issued and unexercised) to purchase 70,000 shares of common stock at $30 per share were outstanding at the beginning of 2009. Average market price for

2009 was $51.

(g) Stock warrants to purchase 50,000 shares of common stock at $45 per share were attached to the preferred stock. The warrants expire on December 31, 2013, and were outstanding at December 31, 2009.

(h) The effective tax rate was 30% for both years.

(i) On February 1, 2010, before the 2009 financial statements were issued, Kishkumen split its common stock 2 for 1.

Instructions: For the year ended December 31, 2009, compute basic and diluted EPS.