On January 1, 2017, Pronghorn Company issued 10-year, $2,090,000 face value, 6% bonds, at par. Each $1,000 bond is conve...
On January 1, 2017, Pronghorn Company issued 10-year, $2,090,000
face value, 6% bonds, at par. Each $1,000 bond is convertible into
14 shares of Pronghorn common stock. Pronghorn’s net income in 2017
was $311,000, and its tax rate was 40%. The company had 101,000
shares of common stock outstanding throughout 2017. None of the
bonds were converted in 2017.
(a) Compute diluted earnings per share for 2017.
(Round answer to 2 decimal places, e.g.
$2.55.)
| Diluted earnings per share | $
|
(b) Compute diluted earnings per share for 2017,
assuming the same facts as above, except that $1,010,000 of 6%
convertible preferred stock was issued instead of the bonds. Each
$100 preferred share is convertible into 5 shares of Pronghorn
common stock. (Round answer to 2 decimal places, e.g.
$2.55.)
| Diluted earnings per share | $
|
Homework Answers
(a) Interest amount after tax = 2,090,000 x 6% x (1 - 0.40)
= $75,240
Diluted shares = 2,090,000/1,000 x 14 = 29,260 shares
DEPS = (311,000 + 75,240)/(101,000 + 29,260)
= 386,240/130,260
= $2.97 per share
(b) Diluted shares = 1,010,000/100 x 5 = 50,500 shares
DEPS = 311,000/(101,000 + 50,500)
= $2.05 per share
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