Colselo has 200,000 common share outstanding for the year and net income of $400,000.It has 20,000 stock options and 20,000 shares of $100,6% cumulative preferred stock,both of which were outstanding for the entire year.Compute basic and diluted EPS.

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Quizplus · Accepted Answer

Basic EPS is calculated as (Net Income - Preferred Dividends) / Weighted Average Shares. Preferred dividends are $120,000 (20,000 shares * $100 * 6%). Basic EPS = ($400,000 - $120,000) / 200,000 = $1.40. Diluted EPS considers the potential conversion of stock options, which increases the denominator, resulting in a lower EPS.

Colselo Has 200,000 Common Share Outstanding for the Year and Net