Karen

Directions: Read the two scenarios presented in the Problem-Solution Assignment linked below. Once you have finished reading the scenarios, use the information to successfully complete all of the requirements of calculating DEPS and defining securities.

Module 7 Problem-Solution Assignment:

Problem 1

Karen Company had 105,000 shares of common stock outstanding on January 1, 2011. On August 30, 2011, Karen sold 50,000 shares of common stock for cash. Karen also had 11,000 shares of convertible preferred stock outstanding throughout 2011. The preferred stock is $105 par, 5%, and is convertible into 4 shares of common for each share of preferred. Karen also had 400, 8%, convertible bonds outstanding throughout 2011. Each $1,000 bond is convertible into 35 shares of common stock. The bonds sold originally at par. Reported net income for 2011was $350,000 with a 35% tax rate. The regular common and preferred dividends were paid in 2011.

Requirements:

Compute basic and diluted earnings per share for 2011

What is meant by dilution of earnings per share?

What is the “if converted method”?

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