On January 1, 2010, Edward Corporation had 10,000 shares of $6 par value ordinary share and 10,000 shares of 8%, $100 par value convertible preference share outstanding. The preference shares carried a 3 for 1 conversion privilege. On October 1, 2010, all of the preference shares were converted to ordinary. What number of shares must Edward use in computing basic earnings per share at December 31, 2010?

Question

Quizplus · Accepted Answer

Edward Corporation had 10,000 ordinary shares initially. The 10,000 preference shares were converted into 30,000 ordinary shares (10,000 x 3) on October 1, 2010. For EPS calculation, the weighted average number of shares is used. The 30,000 new shares were outstanding for 3 months (October to December), so the weighted average is 30,000 x (3/12) = 7,500. Adding the initial 10,000 shares gives a total of 17,500 shares.

On January 1, 2010, Edward Corporation Had 10,000 Shares of $6