Use the table for the question(s)below.

-Refer to the income statement above.Assuming that Luther has no convertible bonds outstanding,then for the year ending December 31,2006 Luther's diluted earnings per share are closest to:
A)$1.01
B)$1.04
C)$1.53
D)$3.92

Question

Use the table for the question(s)below.
 
-Refer to the income statement above.Assuming that Luther has no convertible bonds outstanding,then for the year ending December 31,2006 Luther's diluted earnings per share are closest to:
A)$1.01 
B)$1.04 
C)$1.53 
D)$3.92

Quizplus · Accepted Answer

Diluted earnings per share reflect the potential impact of all convertible securities that can be converted into common shares. Since there are no convertible bonds outstanding, the diluted EPS would be the same as the basic EPS, which is calculated by dividing net income available to common shareholders by the weighted average number of shares outstanding.

Diluted EPS = (Net income - Preferred dividends) / (Weighted average common shares + Impact of potentially dilutive securities)

In this case, there are no potentially dilutive securities, so diluted EPS = basic EPS = ($30,300 - $350) / 29,900 = $0.98 or rounded to the nearest cent, $1.01.

Therefore, the best choice is A) $1.01.

Use the Table for the Question(s)below