202589-18-35E

AID: 7725 | 1/06/2015

Calculate the Basic EPS:

Basic earnings per share is the amount of a company's profit or loss for a reporting
period that is available to the shares of its common stock that are outstanding during
the reporting period.
It is calculated by dividing net income from the business after extra ordinary items
with the common stock.
Net Income for common stock holders
Common stock
664,000
=
270,000

Basic EPS =

=$ 2.46 Rouded

Working notes:
Calculate net income for common stockholders:
Particulars

Amount ($)

Net income

760,000

Less: Preferred stock dividend

96,000

Net income to common stock holders

664,000

$2.46 Per share

Therefore, the Basic EPS is

Calculate diluted earnings per share:

The convertible securities are dilutive or not are determined as below:
Incremental

Net Income Number of EPS'

Impact Shares Impact

Convertible preferred stock

Convertible bonds

$96,000
= $2
$48,000

$47,250
= $1.82
$26,000

They are both potentially dilutive because both convertible securities are lower than
basic EPS whether the securities are actually dilutive depends on the comparison with
the Recomputed EPS:
24,000 $ 4 = $96,000
Interest on bonds = Face value of the bonds Interest rate Tax rate
= $900,000 0.075 0.70
= $47,250
Interest on bonds is an allowable expenditure while calculating the net income but due
conversion of bonds to equity the tax will be paid on interest

Calculate the diluted EPS:

Diluted EPS is a measurement which is used to evaluate the quality of a
company's earnings per share.
Diluted EPS is calculated by the firm's net income divided by the sum of its average
shares and other convertible instruments.
Net income after adjestments
Adjested common stock
807,250
=
354,667

Dilued EPS =

Dilued EPS=$2.27 Rouded

Number
Net of
Description Income Shares EPS

Basic EPS

$664,000
= $2.461
$270,000

Stock options:1

Number of shares
Assume share warrant excised 32,000
Number of treasury share
Re purchased

 $32, 000 $12

= $21.333
18

Incremental shares 10,667

$664, 000
= $2.361
$280, 667
7.5% Convertible bonds 47,250, 26,000
$711, 250
= $2.31
306, 667
Convertible preferred stock $96,000, $48,000

'Diluted EPS

$807,250
= $2.271
354,667

Therefore, the diluted EPS is

$2.27 Per share