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ABC Co. had 600,000 shares of Common Stock, 40,000 shares of Convertible Preferred Stock, and $3,000,000 of 6% Convertible Bonds outstanding during 2021. The Convertible Preferred Stock is convertible into 80,000 shares of Common Stock. During 2021, ABC Co. paid dividends of $4 per share on the Common Stock and $3 per share on the Convertible Preferred Stock. Each $1,000 Convertible Bond is convertible into 80 shares of Common Stock. The Net Income for 2021 was $1,600,000 and the income tax rate was 30%.
Calculate basic earning per year of common stock for the year ended January1 31, 2104.
If company's preferred stock were convertiable into common stock what additional calculation would be required?

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Answer:

a. Net income for 2021                                               $1,600,000

Less: Preferred dividends                                          $120,000   (40000*$3)

Net income for Common Stockholders                    $1,480,000

Divide by Common Shares outstanding                   600,000

Basic Earnings per share for 2021                             $2.47      

b. If company's preferred stock were convertible into common stock, diluted earnings per shares will also have to be calculated.

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