Reference no: EM132751885

Question - CullumberCorporation is preparing earnings per share data for 2020. The net income for the year ended December 31, 2020 was $392,000 and there were 59,900 common shares outstanding during the entire year. Cullumber has the following two convertible securities outstanding:

10% convertible bonds (each $1,000 bond is convertible into 20 common shares) $111,0003% convertible $100 par value preferred shares (each share is convertible into 2 common shares) $53,000

Both convertible securities were issued at face value in 2017. There were no conversions during 2020, and Cullumber's income tax rate is 23%. The preferred shares are cumulative. For simplicity, ignore the requirement to record the debt and equity components of the bonds separately.

Required -

Calculate the income effect of the dividends on preferred shares.

Calculate Cullumber's basic earnings per share for 2020.

Calculate the after-tax interest paid on the 10% bonds.

Determine an incremental per share effect for each potentially dilutive security.

Determine an incremental per share effect for each potentially dilutive security.

Rank the potentially dilutive securities from most dilutive to least dilutive.

Calculate Cullumber's diluted earnings per share for 2020.

Recalculate Cullumber's basic and diluted earnings per share for 2020, assuming instead that the preferred shares pay a 15% dividend. Calculate the income effect of the dividends on preferred shares.

Calculate Cullumber's basic earnings per share for 2020.

Determine an incremental per share effect for the 15% preferred shares.

Calculate Cullumber's dilutive earnings per share for 2020.