Chapter 10, Problem 10.16E

Effect of Convertible Preferred Stock on Earnings per Share
Pagle Corporation holds 80 percent of Standard Company’s common shares. The companies report the following balance sheet data for December 31, 20X1:

An 8 percent annual dividend is paid on the Pagle preferred stock and a 12 percent dividend is paid on the Standard preferred stock. Pagle’s preferred shares are not convertible. Standard’s preferred shares can be converted into 15,000 shares of common stock at any time. For 20X1, Standard reports $45,000 of net income and pays total dividends of $20,000, and Pagle reports $60,000 of income from its separate operations and pays total dividends of $35.,000.

Required
Compute basic and diluted EPS for the consolidated entity for 20X1.