Reference no: EM133119273
Question - Cullumber Corporation is preparing earnings per share data for 2020. The net income for the year ended December 31, 2020, was $390,000 and there were 60,000 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 25 common shares) $100,000
3% convertible $100 par value preferred shares (each share is convertible into 2 common shares) $46,000
Both convertible securities were issued at face value in 2017. Cullumber'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.
Required -
Calculate Cullumber's weighted average common shares outstanding.
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 10% bonds.
Determine an incremental per share effect for 3% preferred shares.
Rank the potentially dilutive securities from most dilutive to least dilutive.
Calculate Cullumber's diluted earnings per share for 2020.
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