Question

Ray Corporation had 100,000 ordinary shares and 10000 shares of 8% $100 par convertible preference shares outstanding during the year Net income for the year was $400000 and dividends were paid to both ordinary and preference shareholders Rays effective tax rate is 20% Each preference share is convertible in to 5ordinary shares Compute basic and diluted EPS (rounded to the nearest cent).

Answer 1

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Convertible preferred stocks are preferred shares that include an option for the holder to convert the shares into a fixed number of common shares after a predetermined date. Most convertible preferred stock is exchanged at the request of the shareholder, but sometimes there is a provision that allows the company, or issuer, to force the conversion. The value of a convertible preferred stock is ultimately based on the performance of the common stock.