Question

During the current year, Comma Co. had outstanding: 25,000 shares of common stock; 8,000 shares of $20 par, 10% cumulative preferred stock; and 3,000 bonds that are $1,000 par and 9% convertible. The bonds were originally issued at par, and each bond was convertible into 30 shares of common stock. During the year, net income was $200,000, no dividends were declared, and the tax rate was 30%. What amount was Comma's basic earnings per share for the current year?

a. $7.55
b. $7.36
c. $8.00
d. $3.38

Answer 1

b. $7.36

Step-by-step explanation:

The computation of the basic earning per share is shown below;

Basic earnings per share

= (Net income - Preferred dividends) ÷ Outstanding common shares

= [$200,000 - (8000 × $20 × 10%)] ÷ 25,000

= ($200,000 - $16,000) ÷ 25,000

= $184,000 ÷ 25,000

= $7.36

Hence, the option b is correct