Reference no: EM132781284

A company computed basic earnings per share of $0.63 for 2020 as follows:

Net income available to Common Shares = $570,000

Weighted average shares outstanding = 900,000

In addition, throughout the year 2020, the company had the following:

• 20,000 shares of $10 par value, 8.5% cumulative preferred stock which are convertible. Each share of preferred stock is convertible into 4 shares of common stock.
• $1M, 7% convertible bonds. The bonds had originally been issued at par value and are convertible into 100,000 shares of common stock.
• 200,000 fully vested stock options with an exercise price of $25 per share. The average common stock price for the year was $40 per share. The options were originally granted in 2015.
• The effective tax rate was 20%

Problem 1: Compute the dilutive effect of convertible preferred stock on earnings per share.

Problem 2: Compute the dilutive effect of convertible bonds on earnings per share.

Problem 3: Compute the "incremental shares" of stock options on earnings per share.

Problem 4: Compute Diluted Earnings per Share for 2020.