Chapter 20, Problem 20.8E

Computing Basic and Diluted EPS, Convertible Bonds, Preferred Stock. Assume that the $3,500,000 net income reported by Stewart Stamping in E20-4, includes a $780,000 loss from discontinued operations net of tax.

Required

1. a. Based on this information compute basic and diluted earnings per share for the current year.
2. b. Prepare the earnings per share disclosure on the income statement beginning with income from continuing operations.

E20-4. Computing Basic and Diluted EPS, Convertible Bonds, Preferred Stock. Stewart Stamping began the current year with 400,000 common shares outstanding and issued an additional 150,000 shares on September 1. The firm has $10,000,000, 2 5% convertible bonds outstanding for a full year (i.e., $250 000 coupon interest per year), which are convertible into 325,000 shares of common stock .The firm issued the bonds at par and did not convert any during the current year. It also had $1,150,000 par value, 3% nonconvertible, noncumulative preferred stock outstanding for the full year and declared dividends for the current year. The company is subject to a 40% effective tax rate and net income is $3,500,000. Based on this information, compute basic and diluted earnings per share for the current year.