Rudyard Corporation had 100,000 shares of common stock and 10,000 shares of 8%, $100 par convertible preferred stock outstanding during the year. Net income for the year was $400,000 and dividends were paid to both common and preferred shareholders. Rudyard's effective tax rate is 40%. Each share of preferred stock is convertible into five shares of common stock.
-What is Rudyard's diluted EPS (rounded)?
A) $2.13.
B) $2.67.
C) $3.20.
D) $4.80.

Question

Rudyard Corporation had 100,000 shares of common stock and 10,000 shares of 8%, $100 par convertible preferred stock outstanding during the year. Net income for the year was $400,000 and dividends were paid to both common and preferred shareholders. Rudyard's effective tax rate is 40%. Each share of preferred stock is convertible into five shares of common stock. 
-What is Rudyard's diluted EPS (rounded)?
A) $2.13.
B) $2.67.
C) $3.20.
D) $4.80.

Quizplus · Accepted Answer

$\frac{\$ 400,000}{100,000+(10,000 \times 5)}=\frac{\$ 400,000}{150,000}=\$ 2.67$

Rudyard Corporation Had 100,000 Shares of Common Stock and 10,000