Question 2 (Basic and Diluted Earnings Per Share) For the year ended 31 December 2020 Taunton Company
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Question:
Question 2 (Basic and Diluted Earnings Per Share)
For the year ended 31 December 2020 Taunton Company had:
- 10,000,000 outstanding ordinary shares (no change during 2020).
- Convertible preference shares, $1.2 cumulative dividend per share, 1,000,000 shares outstanding (no change during 2020); each preference share is convertible into 2 ordinary shares.
- $5,000,000 of 7% convertible bonds issued at par; each $1,000 bond is convertible into 100 ordinary shares. No bonds were converted up to year-end date.
- On 1 July 2020, 3,000,000 stock options with an exercise price of $15 per share were issued. No stock options were exercised up to year-end date.
- Ordinary share market prices for 2020 were as follows:
- Average for first 1/2 of year: $14
- Average for second 1/2 of year: $18
- Average for year: $16
- Net income for 2020 was $6,500,000. No dividend has been declared this year. The income tax rate is 25%.
Required: (Carry EPS figures to 3 decimal places.)
- Compute the basic earnings per share for Taunton for 2020.
- Without computing the diluted earnings per share, determine and briefly explain whether the stock option, the convertible preference shares and/or the convertible bonds would be dilutive or antidilutive. Show your analyses.
- What would be the reported diluted earnings per share for Taunton for 2020?
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