Homework Answers
1.
Computation of basic earnings per share is:
Basic earnings per share = Net income for the year 2020 / No. of shares
= $9,650,000 / 2,140,000
= 4.51
Hence, the basic earnings per share is 4.51
2.
Computation of diluted earnings per share is:
Diluted earnings per share = Total net income / Total no. of shares
= $9,892,720 / 2,209,700
= $4.48
Hence, the diluted earnings per share is $4.48
Working Notes:
a.
Computation of maturity value is:
Maturity value = Issued value of debentures * Percentage of debentures
= $4,100,000 * 0.07
= $287,000
Hence, the maturity value is $287,000.
b.
Computation of discount amortization is:
Discount amortization = [Issued value of debentures * (1 – 0.96) * 1/10]
= [$4,100,000 * (1 – 0.96) * 1/10]
= $164,000 * 1/10
= $16,400
Hence, the discount amortization is $16,400.
c.
Computation of interest expense is:
Interest expense = Maturity value + Discount amortization
= $287,000 + $16,400
= $303,400
Hence, the interest expense is $303,400.
d.
Computation of interest expense after payment of tax is:
Interest expense after payment of tax = Interest expense * (1 – Tax rate)
= $303,400 * (1 – 0.20)
= $303,400 * 0.80
= $242,720
Hence, the interest expense after payment of tax is $242,720.
e.
Computation of total net income is:
Total net income = Net income for the year 2020 + Interest expense after payment of tax
= $9,650,000 + $242,720
= $9,892,720
Hence, the total net income is $9,892,720.
f.
Computation the new number of shares is:
New number of shares = (Issued value of debentures / Par value of debenture) * Increased conversion ratio
= ($4,100,000 / $1,000) * 17
= 69,700
Hence, the number of shares is 69,700.
g.
Computation the total no. of shares is:
Total no. of shares = Old number of shares + New number of shares
= 2,140,000 + 69,700
= 2,209,700
Hence, the total no. of shares is 2,209,700.
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annually. The current conversion ratio is 13:1, and in 2 years it
will increase to 19:1. At the date of issue, the bonds were sold at
96. Bond discount is amortized on a straight-line basis. Skysong’s
effective tax was 35%. Net income in 2017 was $8,800,000, and the
company had 1,985,000 shares outstanding...
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