Knight Co Owned 80% of the Common Stock of Stoop Co

question 2

Multiple Choice

Knight Co. owned 80% of the common stock of Stoop Co. Stoop had 50,000 shares of $5 par value common stock and 2,000 shares of preferred stock outstanding. Each preferred share received an annual per share dividend of $10 and is convertible into four shares of common stock. Knight did not own any of Stoop's preferred stock. Stoop also had 600 bonds outstanding, each of which is convertible into ten shares of common stock. Stoop's annual after-tax interest expense for the bonds was $22,000. Knight did not own any of Stoop's bonds. Stoop reported income of $300,000 for 2013.
Stoop's diluted earnings per share (rounded) is calculated to be

• A) $5.62.
• B) $3.26.
• C) $3.11.
• D) $5.03.
• E) $4.28.

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