Reference no: EM132683422
Basic and diluted earnings per share
The following data are presented by Quentin Corp. for calendar 2020
Net income $ 4,500,000
Common shares outstanding, 1,000,000 shares
10%, cumulative preferred shares, convertible into 120,000 common shares $ 1,600,000
8% convertible bonds; convertible into 105,000 common shares $ 7,500,000
360,000 call options exercisable at $ 25 per share
Additional information
1. The common and preferred shares and the convertible bonds were outstanding from the beginning of the year.
2. In 2020, a $ 500,000 dividend was declared and distributed; however, no dividends were declared in 2019.
3. The average market price of the common shares in 2020 was $ 30. The stock price was $ 27 on January 1, 2020, and $ 35 on December 31, 2020.
4. The convertible bonds were sold at par.
5. The income tax rate for 2020 is 30%.
Instructions
Problem a) Calculate basic EPS.
Problem b) Calculate diluted EPS.
Problem c) Briefly discuss the usefulness of the EPS measure in general. What is the additional importance of reporting diluted EPS?