Question

At December 31, 2020, Sager Co. had 1,200,000 shares of common stock outstanding. In addition, Sager had 450,000 shares of preferred stock which were convertible into 750,000 shares of common stock. During 2021, Sager paid$1,200,000 cash dividends on the common stock and $800,000 cash dividends on the preferred stock. Net income for 2021 was $6,800,000 and the income tax rate was 40%.

The diluted earnings per share for 2021 is (rounded to the nearest penny) _______.

Answer 1

$3.48

Step-by-step explanation:

Net income ÷Shares of common stock outstanding + Preferred stock convertible shares of common stock.

Net income 6,800,000

Shares of common stock outstanding 1,200,000

Preferred stock convertible 750,000

Hence:

$6,800,000/ ($1,200,000 + $750,000)

=$6,800,000/$1,950,000

=$3.48

Therefore the diluted earnings per share for 2021 is $3.48