Reference no: EM132848506

Question - Sunland Corporation is preparing earnings per share data for 2020. The net income for the year ended December 31, 2020, was $399,000 and there were 58,800 common shares outstanding during the entire year. Sunland has the following two convertible securities outstanding:

12% convertible bonds (each $1,000 bond is convertible into 20 common shares) $100,000

5% convertible $100 par value preferred shares (each share is convertible into 3 common shares) $47,000

Both convertible securities were issued at face value in 2017. Sunland's income tax rate is 24%. The preferred shares are cumulative. For simplicity, ignore the requirement to record the debt and equity components of the bonds separately.

Assume that 40% of the convertible bonds were converted to common shares on April 1, 2020.

The balances at December 31, 2020 do not reflect the conversion of April 1, 2020.

1. Calculate Sunland's weighted average common shares outstanding.

2. Calculate the income effect of the dividends on preferred shares.

3. Calculate Sunland's basic earnings per share for 2020.

4. Calculate the after-tax interest paid on the 12% bonds.

5. Determine an incremental per share effect for 12% bonds; Incremental Numerator Effect, Incremental Denominator Effect, EPS.

6. Determine an incremental per share effect for 5% preferred shares.; Incremental Numerator Effect, Incremental Denominator Effect, EPS.

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

8. Calculate Sunland's diluted earnings per share for 2020.; numerator, denominator, EPS.