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Q14BE.

Expert-verified
Intermediate Accounting (Kieso)
Found in: Page 875

Short Answer

DiCenta Corporation reported net income of $270,000 in 2017 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 40%. Compute DiCenta’s 2017 diluted earnings per share.

DiCenta’s 2017 diluted earnings per share are $4.50.

See the step by step solution

Step by Step Solution

Step 1: The following information is given

Net Income: $270,000

Common stock outstanding: $50,000

Preferred stock of 5,000 shares are converted into 2 shares of common stock.

The annual dividend is $5 per share.

Tax rate: 40%

Step 2: Computation of Diluted EPS

Net income

$270,000

Weighted-average number of shares adjusted for dilutive securities (50,000 + 10,000)

÷ 60,000

Diluted EPS

$4.50

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