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Chapter 16: Q14BE. (page 875)

DiCenta Corporation reported net income of \(270,000 in 2017 and had 50,000 shares of common stock outstanding throughout the year. Also outstanding all year were 5,000 shares of cumulative preferred stock, each convertible into 2 shares of common. The preferred stock pays an annual dividend of \)5 per share. DiCenta鈥檚 tax rate is 40%. Compute DiCenta鈥檚 2017 diluted earnings per share.

Short Answer

Expert verified

DiCenta鈥檚 2017 diluted earnings per share are $4.50.

Step by step solution

01

The following information is given

Net Income: $270,000

Common stock outstanding: $50,000

Preferred stock of 5,000 shares are converted into 2 shares of common stock.

The annual dividend is $5 per share.

Tax rate: 40%

02

Computation of Diluted EPS

Net income

$270,000

Weighted-average number of shares adjusted for dilutive securities (50,000 + 10,000)

梅 60,000

Diluted EPS

$4.50

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Most popular questions from this chapter

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Instructions

Prepare journal entries to record issuance of the stock options, termination of the stock options, exercise of the stock options, and charges to compensation expense, for the years ended December 31, 2018, 2019, and 2020.

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Discuss why options and warrants may be considered potentially dilutive common shares for the computation of diluted earnings per share.
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