Convertible Preferred Stock, Convertible Bonds, and EPS

Francis Company has 16,800 shares of common stock outstanding at the beginning of 2013. Francis issued 2,100 additional shares on May 1 and 1,400 additional shares on September 30. It also has two convertible securities outstanding at the end of 2013. These are:

1. Convertible preferred stock: 1,750 shares of 8.0%, $50 par, preferred stock were issued on January 2, 2010, for $55 per share. Each share of preferred stock is convertible into 2 shares of common stock. Current dividends have been declared and paid. To date, no preferred stock has been converted.

2. Convertible bonds: Bonds with a face value of $175,000 and an interest rate of 5.0% were issued at par in 2012. Each $1,000 bond is convertible into 20 shares of common stock. To date, no bonds have been converted.

Francis earned net income of $80,000 during 2013. The income tax rate is 30%.

Required:

1. Compute the number of shares of common stock that Francis should use in calculating basic earnings per share for 2013.

Weighted average shares outstanding: 18550

2. Calculate basic earnings per share for 2013. If required, round your answer to the nearest cent.

Basic earnings per share: $ 3.94

3. Calculate diluted earnings per share for 2013 and the incremental EPS of the preferred stock and convertible bonds. If required, round your answers to the nearest cent.

Diluted earnings per share: $3.37

Incremental earnings per share

Bonds: $ _______ NEED ANSWER (PLEASE SHOW WORK IF POSSIBLE)

Preferred: $ _______ NEED ANSWER (PLEASE SHOW WORK IF POSSIBLE)

4a. Assume the same facts as above except that net income included a loss from discontinued operations of $14,700 net of income taxes. Compute basic EPS. You do not have to calculate diluted EPS for this case. If required, round your answer to the nearest cent.

Basic earning per share: $ 3.94

4b. Show how the basic EPS you calculated should be reported to shareholders. You do not have to calculate diluted EPS. Francis Company EPS Computations EPS Based on Income from continuing opera Loss from discontinued operat | Net income