Convertible Preferred Stock, Convertible Bonds, and EPS

Francis Company has 9,600 shares of common stock outstanding at the beginning of 2013. Francis issued 1,200 additional shares on May 1 and 800 additional shares on September 30. It also has two convertible securities outstanding at the end of 2013. These are:

Convertible preferred stock: 1,000 shares of 9.5%, $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.

Convertible bonds: Bonds with a face value of $100,000 and an interest rate of 6.5% 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 $50,000 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: ____ shares

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

Basic earnings per share: $ ____

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: $ ___

Incremental earnings per share

Bonds:

$ ___

Preferred:

$ ___

4a. Assume the same facts as above except that net income included a loss from discontinued operations of $12,000 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: $ _____

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:
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