At December 31, 2018, the financial statements of Hollingsworth Industries included the following: Net income for 2018 $ 590 million Bonds payable, 10%, convertible into 47 million shares of common stock $ 250 million Common stock: Shares outstanding on January 1 450 million Treasury shares purchased for cash on September 1 48 million Additional dа ta: The bonds payable were issued at par in 2016. The tax rate for 2018 was 40%. Required: Compute basic and diluted EPS for the year ended December 31, 2018. (Enter your answers in millions (i. e., 10,000,000 should be entered as 10).)

Basic EPS = $1.359 million

Diluted EPS = $1.195 million

Explanation:

For Basic EPS we need to calculate the number of shares outstanding

Shares as on Jan 1 = 450 million

Treasury shares on Sep 1 = 48 million * (4 months : 12 months)

= 16 million

Number of shares o/s = Shares as on Jan 1 - Treasury shares on Sep 1

= 450 million - 16 million

= 434 million

Basic EPS = Net Income : Number of shares o/s

= $590 million : 434 million

= $1.359 million

For Diluted EPS,

Interest savings = 10% * $ 250 million

= $25 million

Adjusted Net Income = Net Income + After tax interest savings

= $590 million + [25 millions - 40 (25million) ]

= $590 million - $15 million

= $575 million

and weighted number of shares will include the bonds, that are convertible

Outstanding shares as computed = 434 million

Bond conversion Shares = 47 million

Total shares outstanding = Outstanding shares as computed + Bond conversion Shares

= 434 million + 47 million

= 481 million

Diluted EPS = Adjusted Net income : Total shares outstanding

= $575 million : 481 million

= $1.195 million