DiCenta Corporation reported net income of $270,000 in 2020 and had 50,000 shares of common stock outstanding throughout the year. Also outstanding all year were 5,000 shares of cumulative preferred stock, each convertible into 2 shares of common. The preferred stock pays an annual dividend of $5 per share. DiCenta’s tax rate is 20%.
Compute DiCenta's diluted earnings per share.

Explanation:

Basic and diluted Eps

Basic EPS = profit after tax-preference share dividend / w. Avg No.of shares

Basic Eps

Income            270000

Tax20%          54000

Pat                  216000

Dividend5*5000  -25000

                191000

W.Avg No. shares 50000

Basic EPS191/503.82

Diluted Eps

PAT                                                                                               191000

Add back Dividend of assumed conversion of pref. shares     25000

Total Income                                                                               216000

Total No of share                                                                         60000*

Diluted Eps   216000/60000                                                        3.6

*Common Stock                                                            = 50000

Add Assumed Conversion of Pref. shares = 5000*2 = 10000

Total Shares                                                                   = 60000

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