Reference no: EM132889849

Problem - Convertible Securities and Earnings per Share At the beginning of 2019, Microbee Honey Corporation had 90,000 shares of $1.00 par value common stock issued and outstanding. During 2019, the following common stock transactions have taken place:

Feb. 1 Issued 40,000 shares at a price of $32 per share.

Apr. 1 Declared and distributed a 10% stock dividend. The market price on that date was $36.

June 1 Repurchased 16,000 shares for the treasury at a price of $33 per share.

Aug. 1 Reissued 5,000 shares from the treasury at a price of $45 per share.

Nov. 30 Declared a 2-for-1 stock split. The market price on that date was $56.

For 2019, Microbee reported $575,000 of net income. In addition, the company had the following securities outstanding:

1. 22,000 stock options issued on March 1, 2019. The stock options have an exercise price of $15, and none had been exercised as of December 31, 2019.

2. 5,000 shares of $100 par value, 12% cumulative convertible preferred stock. Each share of preferred stock is convertible into 15 shares of common stock. The shares were issued in 2015.

3. $600,000 of 9% convertible bonds issued at par. The bonds were issued in 2017 and as of December 31, 2019, none had been converted into common shares. Each $1,000 bond is convertible into 32 shares of common stock.

All option exercise prices and conversion ratios have been adjusted for stock dividends and stock splits that occurred during the year.

Microbee has an effective tax rate of 36% and had an average stock price during 2019 of $37 adjusted for stock splits and dividends.

Required -

1. Calculate basic earnings per share for Microbee for 2019.

2. Calculate tentative DEPS and incremental DEPS for each dilutive security.

3. What would Microbee report for basic and diluted earnings per share for 2019?