2nd Edition

ISBN: 9780134730370

Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella

Publisher: PEARSON

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Chapter 20, Problem 20.1MC

Hutchins Company had 200,000 shares of common stock, 50,000 shares of convertible preferred stock, and $2,000,000 of 10% convertible bonds outstanding during the entire year. The preferred stock was convertible into 40 000 shares of common stock. During the current year, Hutchins paid dividends of $1.00 per share on the common stock and $2.00 per share on the preferred stock. Each $1 000 bond was convertible into 50 shares of common stock. The net income for the year was $1,000,000, and the income tax rate was 30%. Basic earnings per share for the current year was (rounded to the nearest penny):

a. $5 00
b. $4 50
c. $4.30
d. $4 55

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Solution Summary: The author explains that the correct option is b. Basic earnings per share measure the level of earnings that are finally payable to the investors or the shareholders of the company.

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