During 20X6, ZZZ Corp. reported net income of $115,600 and had 200,000 shares of common stock outsnading for the entire year. ZZZ also had 1,000 shares of 10%, $100 par, preferred stock outstanding during 20X6. During 20X5, ZZZ issued 600, $1,000 par, 7% bonds for $600,000 (issued at par). Each of these bonds is convertible to 100 shares of common stock The tax rate is 40%. Compute the 20X6 basic and diluted EPS
Basic EPS is the earning per share attributable for common shareholders only. Since preferred dividends are private equity, they are deducted from net income, because only ( Net Income - Preferred dividend ) is attributable for common shareholders.
I don’t know what you mean by “preferred dividends are private equity”, but in the usual sense of that term, they’re not.
Preferred dividends are simply not available to common shareholders; the preferred shareholders have to be paid their dividend before the common shareholders.
You right, my bad. I already meant that the preferred stock are like private equity, or it works like it in some way. The preferred stock are not purchased in a public offering nor secondary markets and it has more rights than common. Well, if I’m totally bad just let me know.