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16 August, 02:29

On January 2, 2018, Bonita Industries issued at par $2020000 of 5% convertible bonds. Each $1000 bond is convertible into 10 shares of common stock. No bonds were converted during 2018. Bonita had 197000 shares of common stock outstanding during 2018. Bonita's 2018 net income was $902000 and the income tax rate was 25%. Bonita's diluted earnings per share for 2018 would be (rounded to the nearest penny

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  1. 16 August, 02:58
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    Bonita's diluted earnings per share for 2018 would be $3,80

    Explanation:

    Step 1 Calculate the Basic Earnings Per Share

    Basic Earnings Per Share = Income Attributable to Common Stockholders / Weighted Average Number of Common Stocks

    Income Attributable to Common Stockholders

    Net income $902000

    less Interest on bonds ($2020000*5%) * 75% ($75,750)

    Income Attributable to Common Stockholders $826,250

    Basic Earnings Per Share = $826,250 / 197000

    =$4,19

    Step 1 Calculate the Diluted Earnings Per Share

    Diluted Earnings Per Share = Adjusted Income Attributable to Common Stockholders / Adjusted Weighted Average Number of Common Stocks

    Adjusted Income Attributable to Common Stockholders

    Income Attributable to Common Stockholders $826,250

    Add Interest on bonds ($2020000*5%) * 75% ($75,750)

    Income Attributable to Common Stockholders $826,250

    Adjusted Weighted Average Number of Common Stocks

    common stock outstanding 197000

    add convertible bond ($2020000/$1000*10 shares) 20200

    Weighted Average Number of Common Stocks 217200

    Diluted Earnings Per Share = $826,250/217200

    = $3,80
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