Discussion Post
Lin Company had $500,000 net income in 2013. On January 1, 2013 there were 200,000 shares of common stock outstanding. On April 1, 20,000 shares were issued and on September 1, Lin bought 30,000 shares of treasury stock. There are 30,000 options to buy common stock at $40 a share outstanding. The market price of the common stock averaged $50 during 2013. The tax rate is 40%.
During 2013, there were 40,000 shares of noncumulative, nonparticipating preferred stock outstanding. The preferred is $100 par, and paid a 3.5% dividend in 2013.
Lin issued $2,000,000 of 8% convertible bonds at face value during 2012. Each $1,000 bond is convertible into 30 shares of common stock.
Instructions (show your work):
• Compute basic and diluted earnings per share for 2013.
• How would your answer to part i differ if the preferred stock was cumulative and no dividend was paid in 2013?
• Independent of ii, how would your answer to part i differ if the preferred stock was convertible where each preferred share could be converted into 3 common stock shares? Be sure to show computations.
The response should include a reference list. One-inch margins, Using Times New Roman 12 pnt font, double-space and APA style of writing and citations.