Reference no: EM132676405
Question - Headland Inc. had 507,000 common shares outstanding for the entire fiscal year ended August 31, 2020. Headland has 102,000outstanding $2 cumulative, no-par value preferred shares. All shares were outstanding for the full year. Options were written at the start of the fiscal year to purchase 31,000 common shares at $16 per share. The average market price of Headland's common shares during the year ended August 31, 2020 was $25 per share. The options expire in 2029, and none were actually exercised during the current year. Also outstanding for the entire year was a 6% bond with a face value of $6,600,000, convertible to 150,000 common shares. Headland Inc.'s net income for the year was $2,688,300, and the income tax rate for the fiscal year was 40%. (For simplicity, ignore the requirement to record the debt and equity portions of the convertible bond separately).
Required -
a) Calculate the income effect of the dividends on preferred shares.
b) Calculate Headland Inc.'s basic earnings per share for the year ended August 31, 2020.
c) Calculate the after-tax interest paid on the 6% bonds.
d) Determine an incremental per share effect for 6% bonds.
e) Calculate the proceeds from assumed exercise of 31,000 options.
f) Calculate the incremental shares outstanding upon the exercise of options.
g) Rank the potentially dilutive securities from most dilutive to least dilutive.
h) Calculate Headland Inc.'s diluted earnings per share for the year ended August 31, 2020.
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