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

question 6

Multiple Choice

Baker 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 issued on June 1.Determine the numerator for both basic and diluted EPS when the tax rate is 40%.

• A)basic EPS $6,000,000 - $50,000; diluted EPS $6,000,000 - $50,000 + ($300,000 × 5/12)(1 - .40)
• B)basic EPS $6,000,000 - $50,000; diluted EPS $6,000,000 - $50,000 + ($300,000 × 7/12)(1 - .40)
• C)basic EPS $6,000,000 - $50,000 (7/12); diluted EPS $6,000,000 - $50,000 (7/12)+ ($300,000 × 7/12)(1 - .40)
• D)basic EPS $6,000,000 - $50,000 (5/12); diluted EPS $6,000,000 - $50,000 (5/12)+ ($300,000 × 5/12)(1 - .40)

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Definitions:

Elastic Supply

A situation where the quantity supplied of a good or service changes significantly in response to changes in price.

Tax Burden

The overall impact of taxes on an individual or entity's finances, often expressed as a percentage of income or total cost.

Deadweight Loss

The loss of gains from trade to buyers and sellers that occurs when a tax is imposed. The deadweight loss imposes a burden on both buyers and sellers over and above the actual payment of the tax.

Keynesian View

An economic theory asserting that government intervention can stabilize the economy through monetary and fiscal policies.