At December 31, 2021, the financial statements of Hollingsworth Industries included the following:

Net income for 2021 $ 520 million

Bonds payable, 8%, convertible

into 40 million shares of common stock $ 250 million

Common stock:

Shares outstanding on January 1 400 million

Treasury shares purchased for cash

on September 1 36 million

Additional dа ta:

The bonds payable were issued at par in 2019.

The tax rate for 2021 was 25%.

Compute basic and diluted EPS for the year ended December 31, 2019

Basic EPS = $1.34 million

Diluted EPS = $1.23 million

Explanation:

As per the data given in the question,

Share on Jan-1 = 400 million

On Sep 1 Treasury shares = 12 million (36 million * 4 months : 12 months)

No. of shares = 400 - 12 = 388 million

Basic EPS = Net income : number of outstanding shares

= $520 million : 388 million

= $1.34 million

Diluted EPS:

Net income = $520 million

After tax interest saving = $8 (20 million - (40% * 20 million))

The 20 million is come from

= $520 million * 8%

= 20 million

Adjusted net income = $520 + $8 = $528 million

No. of shares as computed above = 388 million

Bond conversion shares = 40 million

Total share outstanding = 388 + 40 = 428 million

Diluted EPS = $528 million : 428 million

= $1.23