Earnings per Share—Multiple Convertible Securities
Data for Dwight Powder Company at the end of 2009 follow. All bonds are convertible as indicated and were issued at their face amounts.
|
Description of Bonds |
Amount |
Date Issued |
Conversion Terms |
|
10 year, 61⁄2 % convertible bonds |
$ 700,000 |
Jan 1, 2003 |
100 shares of common for each $1,000 bond |
|
20 year, 7% convertible bonds |
1,000,000 |
Jan 1, 2004 |
50 shares of common |
|
|
|
|
for each $1,000 bond |
|
25 year, 101⁄2 % convertible bonds |
1,600,000 |
June 30, 2008 |
32 shares of common for each $1,000 bond |
|
Additional information: |
|
|
Common shares outstanding at December 31, 2008 |
700,000 |
|
Net income for 2009 |
$1,406,000 |
|
Income tax rate |
30% |
Instructions:
1. Compute basic and diluted EPS for 2009, assuming that no additional shares of common stock were issued during the year.
2. Compute basic and diluted EPS, assuming that the 10 year bonds were converted on July 1, 2009, and that net income for the year was $1,421,925 (reflects reduction in interest due to bond conversion).