Pharoah Inc. has 0.90 million common shares outstanding as at January 1, 2020. On June 30, 2020, 4% convertible bonds we

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Pharoah Inc. has 0.90 million common sharesoutstanding as at January 1, 2020. On June 30, 2020, 4% convertiblebonds were converted into 110,000 additional shares. Upto that point, the bonds had paid interest of $900,000 aftertax. Net income for the year was $1,299,146. During the year, thecompany issued the following:
On February 1, Pharoah also purchased in the openmarket 14,430 call options on its own shares, allowing itto purchase its own shares for $31. Assume the average market pricefor the shares during the year was $39.Assume further the following:
On September 30, 220,000 convertible preferred shareswere redeemed. If they had been converted, these shares would haveresulted in an additional 110,000 common shares beingissued. The shares carried a dividend rate of $3 per share tobe paid on September 30. No conversions have ever occurred.
There are 10,000 of $1,000, 9% convertible bondsoutstanding with a conversion rate of three common shares for eachbond starting January 1, 2021. Beginning January 1, 2024, theconversion rate is six common shares for each bond; and beginningJanuary 1, 2028, it is nine common shares for each bond. The taxrate is 30%.
(a1)
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Calculate weighted common shares outstanding.
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(a2)
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Calculate the income effect of the dividends on preferredshares