Basic EPS = Net income − preferred dividends / Wt Average shares of common = ($200,000 − $35,045) / 40,045 = 164,955/40,045 = $4.12
Diluted EPS:
(100 bonds)(33 common shares/bond) = 3,300 common shares
(2,315 preferred shares)(3.3) = 7,640
(2,572 preferred shares)(5) = 12,860
7,640 + 12,860 = 20,500 common shares from preferred
[($200,000 − $35,045) + $35,045 + $3,675] / (40,045 + 3,300 + 20,500 + 2,689)
= $203,675 / 66,534 shares = $3.06
