BUS 203-Review
Chapter 16
Earnings per Share
Handout
-4-
Delta Digital Inc. has just closed its books for 2019. The company follows GAAP when
preparing its financial statements and earing per share data. The CFO of Delta is
aware of the importance of earnings per share and has requested that you review the
financial data below and prepare both Basic and Diluted Earnings per share for review
with Delta's CEO next week.
The following relevant financial information for 2019 is provided:
Net Income
$5,700,000
Convertible Bonds, 7%
2,000,000
Preferred Cumulative Stock, 6%, $100 par
4,000,000
Common Stock, $10 par
6,000,000
Corporate Tax Rate
20%
Average Common Stock Market Price/share
$25
There were no changes to common stock during the year, i.e. no new shares were
issued or acquired. There are no Preferred Stock dividends in arrears as of 12/31/19..
The convertible bonds allow holders to covert each 1,000 bond into 30 shares of
common stock.
Additionally, Delta has 75,000 common stock options outstanding, granting option
holders the right to purchase stock at $20 per share.
Required
1. Compute Basic Earnings per share
2. Compute Diluted Earnings per share (round to the nearest cent)