Convertible Bonds Issued During the Year
Refer to Practice 18–9. Assume that the convertible bonds were issued on October 1. Compute diluted earnings per share, assuming that (1) each bond was convertible into 50 shares of common stock and (2) each bond was convertible into 15 shares of common stock.
Practice 18–9
Diluted EPS and Convertible Bonds
The company had 100,000 shares of common stock outstanding throughout the year. In addition, as of January 1,the company had issued 500 convertible bonds ($1,000 face value, 10%). The company has no other potentially dilutive securities.Net income for the year was $200,000. The income tax rate is 40%. Compute diluted earnings per share, assuming that (1) each bond was convertible into 40 shares of common stock and (2) each bond was convertible into 10 shares of common stock.