Reference no: EM132712544
Question - Basic and Diluted Earnings Per Share
The following data are presented by Quentin Corp. for calendar 2020
Net income $4,500,000
Common shares outstanding, 1,000,000 shares
10%, cumulative preferred shares, convertible into 120,000 common shares $ 1,600,000
8% convertible bonds; convertible into 105,000 common shares $ 7,500,000
360,000 call options exercisable at $ 25 per share
Additional information
1. The common and preferred shares and the convertible bonds were outstanding from the beginning of the year.
2. In 2020, a $ 500,000 dividend was declared and distributed; however, no dividends were declared in 2019.
3. The average market price of the common shares in 2020 was $ 30. The stock price was $ 27 on January 1, 2020, and $ 35 on December 31, 2020.
4. The convertible bonds were sold at par.
5. The income tax rate for 2020 is 30%.
Instructions -
a) Calculate basic EPS.
b) Calculate diluted EPS.
c) Briefly discuss the usefulness of the EPS measure in general. What is the additional importance of reporting diluted EPS?