Chapter 20, Problem 20.9P

Computing Basic and Diluted EPS, Convertible Bonds, Preferred Stock, Disclosures, Net Loss. The following is a partial income statement for Sonata Enterprises for the current year.

Partial Income Statement	For the Current Year
Loss from Continuing Operations	$ (621,000)
Income from Discontinued Operations, net of tax	3,256,000
Net Income	$ 2,635,000

The company is subject to a 40% tax rate Share information for the current year follows.

Event and Date	Number of Shares
1/1 Beginning balance	2,000,000
5/1 New share issue	360,000
8/1 New share issue	120,000
12/1 Two-for-one split

Sonata provided you the following information about its capital structure:

• It issued 3%_: $1,500,000 convertible debt 2 years ago at par value.
• Each $1,000 par value bond converts into five shares of the company’s common stock.
• It has $800,000 par value, 6% cumulative, nonconvertible preferred shares outstanding for the entire year.
• There were no actual exercises or conversions during the year.

Required

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