202589-18-31E

AID: 7725 | 1/06/2015

Calculate basic EPS:

Basic earnings per share is the amount of a company's profit or loss for a reporting
period that is available to the shares of its common stock that are outstanding during
the reporting period.
It is calculated by dividing net income from the business after extra ordinary items
with the common stock.
Net income before extraordinary items for the year is $199,800
Number of shares existing is 100,000
Net Income before extraordinary items
Commonstock
199,800
=
100,000

Basic EPS =

=$ 2 Rouded
Extraordinary gain for the year is $43,520
Number of shares existing is 100,000
Extraordinary gain
Commonstock
43,520
=
100,000

Basic EPS =

=$ 0.43 Rouded
Netincome + Extraordinary gain
Commonstock
199,800 + 43,520
=
100,000
= $ 2.43(Rouded)

Basic EPS =

Therefore, the basic EPS is $2.43.

Prepare a table to show the basic EPS:
Description amount
Income before extraordinary gain $2.00
Extraordinary gain

Net income $ 2.43

Rounded down. Therefore, the Basic EPS is $2.43.
Calculate adjusted net income:
Particulars
Net income
Add: Interest on convertible bonds net of
taxes
Interest ($800,000 0.05)
Less: Income taxes of 30% (12,000)
Adjusted net income

Amount ($)
199,800
$40,000
$28,000
227,800

The Adjusted income before extraordinary gain is $227,800.

Note:
Interest on bonds is added back to the net income after charging tax due to conversion of
debt to common shares.
Calculate adjusted number of shares:
Particulars
Actual number of shares outstanding
Add: Additional issued on assumed conversion of bonds
Total number of shares to calculate diluted EPS
The Total shares for computing diluted EPS is 140,000.
Discription amount
Income before extraordinary gain 1.63

227,800 / 140, 000

Extraordinary gain 43,520 / 140, 000 0.31

Diluted EPS $1.94

Therefore, the diluted EPS is

$1.94.

Shares
100,000
40,000
140,000