Computing EPS with convertible debentures
Pal Corporation has $108,000 income from its own operations for 2011, and $42,000 income from Sir Corporation, its 70 percent owned subsidiary. Sir’s net income of $60,000 consists of $66,000 operating income less $6,000 net of tax interest on its outstanding 10 percent convertible debentures. Throughout 2011, Pal has 100,000 shares of common stock outstanding, and Sir has 50,000 outstanding common shares.
REQUIRED
1. Compute Pal’s diluted earnings per share for 2011, assuming that Sir’s bonds are convertible into 10,000 shares of Sir’s common stock.
2. Compute Pal’s diluted earnings per share for 2011, assuming that Sir’s bonds are convertible into 10,000 shares of Pal’s common stock.