Question

n 2019, Carla Enterprises issued, at par, 60 $1,000, 8% bonds, each convertible into 100 shares of common stock. Carla had revenues of $19,000 and expenses other than interest and taxes of $9,500 for 2020. (Assume that the tax rate is 20%.) Throughout 2020, 2,200 shares of common stock were outstanding; none of the bonds was converted or redeemed.

(a) Compute diluted earnings per share for 2020. (Round answer to 2 decimal places, e.g. $2.55.)

Earnings per share

$

(b) Assume the same facts as those assumed for part (a), except that the 60 bonds were issued on September 1, 2020 (rather than in 2019), and none have been converted or redeemed. Compute diluted earnings per share for 2020. (Round answer to 2 decimal places, e.g. $2.55.)

Earnings per share

$

(c) Assume the same facts as assumed for part (a), except that 20 of the 60 bonds were actually converted on July 1, 2020. Compute diluted earnings per share for 2020. (Round answer to 2 decimal places, e.g. $2.55.)

Earnings per share

$

Answer 1

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A B C D E F H I J K L M N 0 P 1 an 2 60 3 Number of bonds Par value Rate Coversion ratio 4 1000 8% 100 5 shares Common shares 2200 6 7 Tax rate 20% 8 9 19000 -9500 -4800 a. Revenue Expenses Interest on bonds Profit before tax Tax Net income 10 4700 -940 11 12 3760 13 14 Diluted EPS 0.926829268 15 16 19000 Tax rate 20% 19000 Tax rate 20% 17 b. Revenue Expenses Interest on bonds Profit before tax -9500 -1600 7900 -9500 -2400 18 19 c. Revenue Expenses Interest on bonds Interest on bonds Profit before tax Tax Net income - 1600 5500 20 Tax - 1580 21 Net income 6320 -1100 22 4400 23 Diluted EPS 1.80952381 24 Diluted EPS 0.926829268 25 26

For calculation ref:

A B D LE F G H J K L 1 2 3 Number of bonds 60 Par value 1000 Rate 0.08 Coversion ratio 100 4 shares Common shares 2200 5 6 7 Tax rate 0.2 8 9 a. Revenue 19000 Expenses -9500 Interest on bonds --D2*D3*D4 Profit before tax =SUM(D7:09) Tax =-D10*G7 Net income =D10+D11 10 11 12 13 14 Diluted EPS =(D12+(1-G7)*(-09))/(H5+(D2*D5)) 15 16 Tax rate 0.2 17 18 b. Revenue 19000 Expenses -9500 Interest on bonds --D2*D3*D4*4/12 Profit before tax=SUM(D16:D18) Tax --D19*G16 Net income =D19+D20 19 c. Revenue 19000 Expenses -9500 Interest on bonds --60*1000*8%*1/2 Interest on bonds --40*1000*8%*1/2 Profit before tax =SUM(L16:L19) Tax --L20*016 Net income =L20+L21 20 21 22 23 Diluted EPS =(D21+(1-616)*(-D18))/(H5+(D5*D2*1/3)) 24 Diluted EPS =(L22+(1-016)*(-L18-L19))/(2200+2000*1/2+4000+2000*1/2) 25 26 27 Sheet157 Sheet158 Sheet159 Sheet160 Sheet161 Sheet162 Sheet163 Stats Ready OU 100% - U