On January 2, 2018, L Co. issued at face value $20,000 of 4% bonds convertible in...
On January 2, 2018, L Co. issued at face value $20,000 of 4% bonds convertible in total into 1,000 shares of L's common stock. No bonds were converted during 2018.
Throughout 2018, L had 1,000 shares of common stock outstanding. L's 2018 net income was $2,000. L's income tax rate is 50%.
No potential common shares other than the convertible bonds were outstanding during 2018.
L's diluted earnings per share for 2018 would be:
Homework Answers
L's diluted earnings per share for 2018 is $1.20
Explanation:-
Given net income = $2000, Interest rate = 4%
Diluted EPS = (Net income + Interest after tax)/Total outstanding shares outstanding
Now, Interest(Before tax) = 20000 * 4% = $800
Interest after tax = 800 - 50% = $400
Total shares outstanding = 1000 + 1000 = 2000 shares
So, Diluted EPS = (2000 + 400)/2000
= 2400/200
= $1.2
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