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Calculate the income effect of dividends on preferred shares

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Question - Crane Corporation is preparing earnings per share data for 2020. The net income for the year ended December 31, 2020 was $410,000 and there were 58,500 common shares outstanding during the entire year. Crane has the following two convertible securities outstanding:

10% convertible bonds (each $1,000 bond is convertible into 20 common shares) $114,0004% convertible $100 par value preferred shares (each share is convertible into 2 common shares) $55,000

Both convertible securities were issued at face value in 2017. There were no conversions during 2020, and Crane'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.

*Recalculate Crane's basic and diluted earnings per share for 2020, assuming instead that the preferred shares pay a14% dividend.

A) Calculate the income effect of the dividends on preferred shares.

B) Calculate Crane's basic earnings per share for 2020. (Round answer to 2 decimal places, e.g. 15.25.)

Reference no: EM133016921

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