The table below shows a partial view of Webster Corporation's balance sheet. Webster Corporation Balance Sheet (partial) At December 31, 2021 Long-term debt Notes payable 10% $2,000,000 10% convertible bonds payable 2,500,000 12% convertible bonds payable 3,000,000 Total long-term debt $7,500,000 Stockholders' equity 6% cumulative, convertible preferred stock, $100 par, 50,000 shares outstanding. 5,000,000 Common stock, $1 par, 600,000 shares outstanding. 600,000 Additional paid-in capital 2,500,000 Retained earnings 8,500,000 Total stockholders' equity $16,600,000 Notes and Assumptions December 31, 2021 1. Options were granted in December 2020 to purchase 25,000 shares of common stock at $25 per share. The average market price of common stock during 2021 was $35 per share. All options are still outstanding at the end of 2021 2. Both the 10 percent and 12 percent convertible bonds were issued in 2020 at face value. Each convertible bond is convertible into 50 shares of common stock. (Each bond has a face value of $1,000.) 3. The 6 percent cumulative, convertible preferred stock was issued at the beginning of 2021 at par. Each share of preferred is convertible into one share of common stock. 4. The average income tax rate is 20 percent. 5. 600,000 shares of common stock were outstanding during the entire year. 6. Preferred dividends were not declared in 2021. 7. Net income was $2,000,000 in 2021. 8. No bonds or preferred stock were converted during 2021. Instructions: Calculate basic and diluted EPS for the year ended December 31, 2021. Your answer should include a calculation of basic EPS, the per share effect on EPS of all convertible instruments, the ranking of the per share effects, and the recomputation of EPS for each security to arrive at your answer for diluted EPS. You must clearly show your final answer for Basic and Diluted EPS.
The table below shows a partial view of Webster Corporation's balance
sheet.
Webster Corporation
Balance Sheet (partial)
At December 31, 2021
Long-term debt
Notes payable 10% $2,000,000
10% convertible bonds payable 2,500,000
12% convertible bonds payable 3,000,000
Total long-term debt $7,500,000
6% cumulative, convertible
shares outstanding. 5,000,000
Common stock, $1 par, 600,000
shares outstanding. 600,000
Additional paid-in capital 2,500,000
Total stockholders' equity $16,600,000
Notes and Assumptions December 31, 2021
1. Options were granted in December 2020 to purchase 25,000 shares of common stock at $25 per share. The average market price of common stock during 2021 was $35 per share. All options are still outstanding at
the end of 2021
2. Both the 10 percent and 12 percent convertible bonds were issued in
2020 at face value. Each convertible bond is convertible into 50 shares of common stock. (Each bond has a face value of $1,000.)
3. The 6 percent cumulative, convertible preferred stock was issued at the beginning of 2021 at par. Each share of preferred is convertible into one share of common stock.
4. The average income tax rate is 20 percent.
5. 600,000 shares of common stock were outstanding during the entire year.
6. Preferred dividends were not declared in 2021.
7. Net income was $2,000,000 in 2021.
8. No bonds or preferred stock were converted during 2021.
Instructions:
Calculate basic and diluted EPS for the year ended December 31, 2021.
Your answer should include a calculation of basic EPS, the per share effect on EPS of all convertible instruments, the ranking of the per share effects, and the recomputation of EPS for each security to arrive at your answer for
diluted EPS.
You must clearly show your final answer for Basic and Diluted EPS.
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