Impact on EPS, Rankings, and Computations
Waseca Company had 5 convertible securities outstanding duringall of 2016. It paid the appropriate interest (and amortized anyrelated premium or discount using the straightline method) anddividends on each security during 2016. Each of the convertiblesecurities is described in the following table:
| Security | Description |
|---|
| 10.2% bonds | $200,000 face value. Issued at par. Each $1,000 bond isconvertible into 28 shares of common stock. |
| 12.0% bonds | $160,000 face value. Issued at 110. Premium being amortizedover 20-year life. Each $1,000 bond is convertible into 47 sharesof common stock. |
| 9.0% bonds | $200,000 face value. Issued at 95. Discount being amortizedover 10-year life. Each $1,000 bond is convertible into 44 sharesof common stock. |
| 8.3% preferred stock | $120,000 par value. Issued at 108. Each $100 par preferredstock is convertible into 3.9 shares of common stock. |
| 7.5% preferred stock | $180,000 par value. Issued at par. Each $100 par preferredstock is convertible into 6 shares of common stock. |
Additional data:
Net income for 2016 totaled $119,460. The weighted averagenumber of common shares outstanding during 2016 was 40,000 shares.No share options or warrants are outstanding. The effectivecorporate income tax rate is 30%.
Required:
1. Prepare a schedule that lists the impact of the assumedconversion of each convertible security on diluted earnings pershare. Round to two decimal places.
| Waseca Company |
| Schedule of Impact on EPS |
|
| Impact |
| 10.2% bonds | $ |
| 12.0% bonds | $ |
| 9.0% bonds | $ |
| 8.3% preferred stock | $ |
| 7.5% preferred stock | $ |
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2. Prepare a ranking from 1-5 of the order in which each of theconvertible securities should be included in diluted earnings pershare. The convertible security having the most dilutive impact ondiluted earnings per share is listed at the top of the ranking(i.e. "1").
| Waseca Company |
| Schedule of Ranking |
|
| Ranking |
| 10.2% bonds | |
| 12.0% bonds | |
| 9.0% bonds | |
| 8.3% preferred stock | |
| 7.5% preferred stock | |
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3. Compute basic earnings per share. Round to two decimalplaces.
$ per share
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4. Compute diluted earnings per share. Round to two decimalplaces.
$ per share
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5. Indicate the amount(s) of the earnings per share that Wasecawould report on its 2016 income statement. Round to the nearestcent.
Basic earnings per share: $
Diluted earnings per share: $
