Convertible Preferred Stock, Convertible Bonds, and EPS Francis Company has 14,400 shares of common stock outstanding at the beginning of 2013. Francis issued 1,800 additional shares on May 1 and 1,200 additional shares on September 30. It also has two convertible securities outstanding at the end of 2013. These are: Convertible preferred stock: 1,500 shares of 9.0%, $50 par, preferred stock were issued on January 2, 2010, for $60 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. Convertible bonds: Bonds with a face value of $150,000 and an interest rate of 6.0% were issued at par in 2012. Each $1,000 bond is convertible into 25 shares of common stock. To date, no bonds have been converted. Francis earned net income of $70,000 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: 15900 shares Hide Feedback Correct Check My Work Feedback Example: Calculation of weighted average shares outstanding 2. Calculate basic earnings per share for 2013. If required, round your answer to the nearest cent. Basic earnings per share: $ 3.98 Hide Feedback Correct Check My Work Feedback 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: $ 2.29 Incremental earnings per share Bonds: $ Preferred: $ Hide Feedback Incorrect Check My Work Feedback You should assume that each convertible stock or bond was converted into common stock at the beginning of the earliest period reported (or on the date of issuance of the security, if later). This assumed conversion causes two changes in the earnings per share calculation, an increase in the denominator and an increase in the numerator: The denominator increases by the number of common shares issued in the assumed conversion. If bonds are assumed to be converted into common stock, the numerator increases because the corporation would not have to pay interest expense (net of income taxes) for the converted bonds, increasing net income. If preferred stock is assumed to be converted into common stock, the numerator increases because the corporation would not have to pay preferred dividends on the converted preferred shares. The following partially completed schedule will help you to organize the information for this exercise. The impact of each convertible security on the corporation's diluted earnings per share is computed as follows: 4a. Assume the same facts as above except that net income included a loss from discontinued operations of $15,000 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: $ Hide Feedback Incorrect Hide 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: $ $