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Sheridan Inc. had net income for the current year ending December 31, 2020 of $912,320. During the entire year, there were 507,000 common shares outstanding. The company had two classes of preferred shares outstanding: the Class A preferred shares were $2.00 cumulative shares of which 10,000 were outstanding, and were convertible to common shares at a rate of 1:1. There were 110,000 $6.00 Class B non-cumulative preferred shares outstanding that were also convertible at a rate of 1:1. Sheridan had outstanding a $1,000,000, 6% bond issued in 2009 that was convertible to 21,000 common shares. The company also had outstanding a $1,000,000, 4% bond issued in 2010 that was convertible to 25,000 common shares. No dividends were declared or paid this year. Sheridans tax rate is 39%.

A.) Calculate the income effect of the dividends on Class A preferred shares.

Dividends on Class A preferred shares

$____________

B.) Calculate the income effect of the dividends on Class B preferred shares.

Dividends on Class B preferred shares

$_____________

C.) Calculate basic earnings per share. (For simplicity, ignore the requirement to record the debt and equity portions of the convertible bond separately.) (Round answer to 2 decimal places, e.g. 15.25.)

Basic earnings per share

$___________

D.) Calculate the after-tax interest paid on the 2009 bonds.

After-tax interest on 2009 bonds converted

$____________

E.) Determine an incremental per share effect for 2009 bonds. (Round earnings per share to 3 decimal places, e.g. 15.257.)

Potentially dilutive security		Incremental Numerator Effect		Incremental Denominator Effect		EPS
2009 Bonds		$				$

F.) Calculate the after-tax interest paid on the 2010 bonds.

After-tax interest on 2010 bonds converted

$_________________

G.) Determine an incremental per share effect for 2010 bonds. (Round earnings per share to 3 decimal places, e.g. 15.257.)

Potentially dilutive security		Incremental Numerator Effect		Incremental Denominator Effect		EPS
8% Bonds		$				$

H.) Determine an incremental per share effect for Class A preferred shares. (Round earnings per share to 2 decimal places, e.g. 15.25.)

Potentially dilutive security		Incremental Numerator Effect		Incremental Denominator Effect		EPS
Class A preferred shares		$				$

I.) Determine an incremental per share effect for Class B preferred shares. (Round earnings per share to 2 decimal places, e.g. 15.25.)

Potentially dilutive security		Incremental Numerator Effect		Incremental Denominator Effect		EPS
Class B preferred shares		$				$

J.) Rank the potentially dilutive securities from most dilutive to least dilutive.

(Options: Rank 1, Rank 2, Rank 3, Rank 4, Anti-Dilutive)

2009 bonds
2010 bonds
Class A preferred shares
Class B preferred shares

K.) Calculate diluted earnings per share. (Round calculations of EPS to 3 decimal places, e.g. $3.545 and provide final answer to 2 decimal places, e.g. 15.25.)

		Numerator		Denominator		EPS
Basic		$				$
Choose 1: (2009 bonds, or 2010 bonds, or Class A preferred shares, or Class B preferred shares)
Sub Total
Choose 1: (2009 bonds, or 2010 bonds, or Class A preferred shares, or Class B preferred shares)
Sub Total
Choose 1: (2009 bonds, or 2010 bonds, or Class A preferred shares, or Class B preferred shares)
		$				$

Diluted EPS

=_____________

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