Question

Calculate basic EPS, and explain the EPS effect of convertible preferred Thrifty Co. reported net income of $191,150 for its fiscal year ended January 31, 2017. At the beginning of that year, 50,000 shares of common stock were outstanding. On October 31, 2016, an additional 15,000 shares were issued. No other changes in common shares outstanding occurred during the year. Also during the year, the company paid the annual dividend on the 20,000 shares of 6%, $50 par value preferred stock that were outstanding the entire year. Required: a. Calculate basic earnings per share of common stock for year ended January 31, 2017. b. If Thrifty Co.’s preferred stock were convertible into common stock, what additional calculation would be required?

Answer 1

Answer:

a. The basic earnings per share of common stock for year ended January 31, 2017 is $3.56 per share

b.  If Thrifty Co.’s preferred stock were convertible into common stock, it would be required to calculate Dluted EPS

Explanation:

a. In order to calculate the basic earnings per share of common stock for year ended January 31, 2017 we would have to calculate the following formula:

BEPS = Net income available to common stockholders / Weighted Avg. no. of common stock

Net income available to common stockholders=$191,150

Weighted Avg. no. of common stock = 50,000 + (15,000x 3/12)

Weighted Avg. no. of common stock= 53750

Therefore, BEPS = $191,150 / 53,750

BEPS =$3.56 per share

The basic earnings per share of common stock for year ended January 31, 2017 is $3.56 per share

b. If Thrifty Co.’s preferred stock were convertible into common stock, it would be required to calculate Dluted EPS