During 2013, M Co. had the following two classes of stock issued and outstanding for the entire year: • 400,000 shares of common stock, $1 par.
• 2,000 shares of 4% preferred stock, $100 par, convertible share-for-share into common stock.
M's 2013 net income was $1,800,000, and its income tax rate for the year was 30%. In the computation of diluted earnings per share for 2013, the amount to be used in the numerator is:
A)$1,792,000.
B)$1,796,000.
C)$1,800,000.
D)$1,802,400.

Question

Quizplus · Accepted Answer

The numerator for diluted EPS is the net income, which is $1,800,000. The preferred stock is convertible, but since it is not converted, the net income remains unchanged for the calculation of diluted EPS.