Chapter 20, Problem 20.3P

Computing Basic and Diluted EPS. Convertible Bonds, Convertible Preferred Stock, Disclosures. Daphne Company provided the following share information for the current year. Daphne reported income from continuing operations of $1,100,000 and a $450,000 loss from discontinued operations net of tax. The company is subject to a 40% tax rate.

Event and Date	Number of Shares
1/1 Beginning balance	150,000
5/1 New share issue	345,000
7/1 Two-for-one stock split
10/1 New share issue	300,000
12/1 Treasury stock acquisition	(120,000)

Daphne has $400,000 3% convertible debt outstanding as of the beginning of the year. The debt was issued at par. Each $1,000 par value bond converts into 20 shares of the company s common stock. The company s shareholders’ equity section indicates that the firm also holds $140 000 par value 4% convertible preferred shares outstanding for the entire year. The board of directors declared the annual dividend. The preferred shares can convert into 10.000 shares of common stock. There were no actual exercises or conversions during the year.

Required

1. a. Compute basic and diluted earnings per share for income from both continuing operations and net income Show all computations
2. b. Prepare all required disclosures beginning with income from continuing operations.