Computing Diluted EPS: Convertible Bonds and Convertible Preferred StockJones Corporation's capital structure follows.December 312020 Outstanding shares of stock Common stock, outstanding shares154,000 Convertible preferred stock, outstanding shares14,000 8% Convertible bonds$1,400,000 During 2020, Jones declared and paid dividends of $3.00 per share on its preferred stock. The preferred shares are convertible in 28,000 shares of common stock. The 8% bonds are convertible into 42,000 shares of common stock. Net income for 2020 is $1,360,000. Assume that the income tax rate is 25%.Requireda. Compute basic EPS for 2020.b. Compute diluted EPS for 2020.Note: Round earnings per share amounts to two decimal places. Net Income Available toCommon StockholdersWeighted Avg. CommonShares OutstandingPerShareBasic EPSAnswerAnswerAnswerDiluted EPSAnswerAnswerAnswer **Title: Computing Diluted EPS: Convertible Bonds and Convertible Preferred Stock****Overview:**This tutorial explains how to compute the diluted earnings per share (EPS) for a company with convertible bonds and convertible preferred stock using the financial data of Jones Corporation as a practical example.**Jones Corporation's Capital Structure (as of December 31, 2020):**- **Outstanding Shares of Stock:** - Common stock, outstanding shares: 154,000 - Convertible preferred stock, outstanding shares: 14,000- **8% Convertible Bonds:** - Amount: $1,400,000**Key Information for 2020:**- Jones declared and paid dividends of $3.00 per share on its preferred stock.- The preferred shares are convertible into 28,000 shares of common stock.- The 8% bonds are convertible into 42,000 shares of common stock.- Net income for 2020: $1,360,000- Income tax rate: 25%**Tasks Required:**- **a. Compute basic EPS for 2020.**- **b. Compute diluted EPS for 2020.****Note:** Round earnings per share amounts to two decimal places.**Table Explanation:**The table is currently unfilled with placeholders indicating where the calculated values need to be entered:- **Basic EPS:** - Net Income Available to Common Stockholders - Weighted Avg. Common Shares Outstanding - Per Share- **Diluted EPS:** - Net Income Available to Common Stockholders - Weighted Avg. Common Shares Outstanding - Per ShareThis guide will help in understanding the step-by-step computation of both basic and diluted EPS, involving adjustments for convertible securities.

Given that, Net Income = $ 1360000 Tax = 25% Dividend…

Answered: Computing Diluted EPS: Convertible…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

Computing Diluted EPS: Convertible Bonds and Convertible Preferred Stock

Jones Corporation's capital structure follows.

December 31	2020
Outstanding shares of stock
Common stock, outstanding shares	154,000
Convertible preferred stock, outstanding shares	14,000
8% Convertible bonds	$1,400,000

During 2020, Jones declared and paid dividends of $3.00 per share on its preferred stock. The preferred shares are convertible in 28,000 shares of common stock. The 8% bonds are convertible into 42,000 shares of common stock. Net income for 2020 is $1,360,000. Assume that the income tax rate is 25%.

Required

a. Compute basic EPS for 2020.

b. Compute diluted EPS for 2020.

Note: Round earnings per share amounts to two decimal places.

	Net Income Available to Common Stockholders	Weighted Avg. Common Shares Outstanding	Per Share
Basic EPS	Answer	Answer	Answer
Diluted EPS	Answer	Answer	Answer

**Title: Computing Diluted EPS: Convertible Bonds and Convertible Preferred Stock**

**Overview:**
This tutorial explains how to compute the diluted earnings per share (EPS) for a company with convertible bonds and convertible preferred stock using the financial data of Jones Corporation as a practical example.

**Jones Corporation's Capital Structure (as of December 31, 2020):**

- **Outstanding Shares of Stock:**
- Common stock, outstanding shares: 154,000
- Convertible preferred stock, outstanding shares: 14,000
- **8% Convertible Bonds:**
- Amount: $1,400,000

**Key Information for 2020:**
- Jones declared and paid dividends of $3.00 per share on its preferred stock.
- The preferred shares are convertible into 28,000 shares of common stock.
- The 8% bonds are convertible into 42,000 shares of common stock.
- Net income for 2020: $1,360,000
- Income tax rate: 25%

**Tasks Required:**
- **a. Compute basic EPS for 2020.**
- **b. Compute diluted EPS for 2020.**

**Note:** Round earnings per share amounts to two decimal places.

**Table Explanation:**

The table is currently unfilled with placeholders indicating where the calculated values need to be entered:

- **Basic EPS:**
- Net Income Available to Common Stockholders
- Weighted Avg. Common Shares Outstanding
- Per Share

- **Diluted EPS:**
- Net Income Available to Common Stockholders
- Weighted Avg. Common Shares Outstanding
- Per Share

This guide will help in understanding the step-by-step computation of both basic and diluted EPS, involving adjustments for convertible securities.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions