Dilutive Securities
Kingston Corporation has basic earnings per common share of $1.54 for the year ended December 31, 2008. For each of the following independent examples, decide whether the convertible security would be dilutive or antidilutive in computing diluted EPS. Consider each example individually. The tax rate is 35%.
(a) 7 1/2% debentures, $500,000 face value are convertible into common stock at the rate of 25 shares for each $1,000 bond.
(b) $6 preferred stock (no par) is convertible into common stock at the rate of three shares of common stock for one share of preferred stock. There are 30,000 shares of preferred stock outstanding.
(c) Options to purchase 150,000 shares of common stock are outstanding. The exercise price is $22 per share; average market price is $27 per share.
(d) $800,000 of 11% debentures are convertible at the rate of 25 shares of common stock for each $1,000 bond.
(e) Preferred 7% stock, $100 par, 10,000 shares outstanding is convertible into 5 shares of common stock for each share of preferred stock.