Smith Instruments Reported $6,000,000 in Net Income for the Current

question 80

Multiple Choice

Smith Instruments reported $6,000,000 in net income for the current year. The company had $500,000 of 10% cumulative, non-convertible preferred stock outstanding all year, and issued $5,000,000 of 6% convertible bonds on June 1. Each $1,000 bond is convertible into 40 shares of common stock. 400,000 common shares were outstanding all year. Determine the denominator for both basic and diluted EPS when the tax rate is 40%.

• A) basic EPS 400,000; diluted EPS 400,000 + (5,000 × 40) (5/12)
• B) basic EPS 400,000 (7/12); diluted EPS 400,000 + (5,000 × 40) (7/12)
• C) basic EPS 400,000; diluted EPS 400,000 + (5,000 × 40) (7/12)
• D) basic EPS 400,000 (5/12); diluted EPS [400,000 + (5,000 × 40)] (5/12)

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Definitions:

Variable Price

Pricing that changes based on factors such as demand, market conditions, or cost of production.

Separate Sales Forces

A strategy where a company divides its sales team into different groups, each focusing on selling specific products or serving particular market segments.

Decentralization

The distribution of administrative powers or functions across various levels within an organization, as opposed to having them concentrated at a single point.

Advantage

Advantage refers to a favorable position or condition that enhances the probability of success or effectiveness in a competitive environment.