Basic and Diluted Earnings Per Share
Name:_____________________________
Part A.
Crystal Corporation earned net income of $750,000 in 2016. It has a
complex capital structure as follows: 10,000 shares outstanding of 10%, $100 preferred
stock, and 150,000 shares issued of $5 common stock. There is also 20,000 common stock
in the treasury. The preferred stock can be converted into 25,000 shares of common.
In addition Crystal has Bonds Payable of $250,000 that pay interest of
8% and can be converted into 10,000 shares of common stock.
The applicable federal income tax rate is 40%
1. Compute basic earnings per share for 2016.
2. Compute diluted earnings per share for 2016.
Part B.
Now assume the preferred stock is not convertible into any common shares.
1. Compute basic earnings per share for 2016.
2. Compute diluted earnings per share for 2016.
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