DiCenta Corporation reported net income of $270,000 in 2020 and had 50,000 shares of common stock outstanding throughout the year. Also outstanding all year were 5,000 shares of cumulative preferred stock, each convertible into 2 shares of common. The preferred stock pays an annual dividend of $5 per share. DiCenta's tax rate is 20%.

Compute DiCenta's diluted earnings per share.

Question

Business

Colby Lee

31 July, 15:01

DiCenta Corporation reported net income of $270,000 in 2020 and had 50,000 shares of common stock outstanding throughout the year. Also outstanding all year were 5,000 shares of cumulative preferred stock, each convertible into 2 shares of common. The preferred stock pays an annual dividend of $5 per share. DiCenta's tax rate is 20%.

Compute DiCenta's diluted earnings per share.

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Deacon Pittman · Answer 1

Basic and diluted Eps

Basic EPS = profit after tax-preference share dividend / w. Avg No. of shares

Basic Eps

Income 270000

Tax 20% 54000

Pat 216000

Dividend 5*5000 - 25000

191000

W. Avg No. shares 50000

Basic EPS 191/50 3.82

Diluted Eps

PAT 191000

Add back Dividend of assumed conversion of pref. shares 25000

Total Income 216000

Total No of share 60000*

Diluted Eps 216000/60000 3.6

*Common Stock = 50000

Add Assumed Conversion of Pref. shares = 5000*2 = 10000

Total Shares = 60000