On January 1, 2017, Carla Company issued 10-year, $1,880,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 16 shares of Carla common stock. Carlaâs net income in 2017 was $277,000, and its tax rate was 40%. The company had 91,000 shares of common stock outstanding throughout 2017. None of the bonds were converted in 2017.
(a) Compute diluted earnings per share for 2017.
(b) Compute diluted earnings per share for 2017, assuming the same facts as above, except that $910,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 5 shares of Carla common stock.
On January 1, 2017, Carla Company issued 10-year, $1,880,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 16 shares of Carla common stock. Carlaâs net income in 2017 was $277,000, and its tax rate was 40%. The company had 91,000 shares of common stock outstanding throughout 2017. None of the bonds were converted in 2017.
(a) Compute diluted earnings per share for 2017.
(b) Compute diluted earnings per share for 2017, assuming the same facts as above, except that $910,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 5 shares of Carla common stock.
Related questions
The information below pertains to Larkspur Company for 2018.
| Net income for the year | $1,190,000 | |
| 7% convertible bonds issued at par ($1,000 per bond); each bond is convertible into 30 shares of common stock | 1,970,000 | |
| 6% convertible, cumulative preferred stock, $100 par value; each share is convertible into 3 shares of common stock | 4,000,000 | |
| Common stock, $10 par value | 6,280,000 | |
| Tax rate for 2018 | 40% | |
| Average market price of common stock | $25 per share |
There were no changes during 2018 in the number of common shares, preferred shares, or convertible bonds outstanding. There is no treasury stock. The company also has common stock options (granted in a prior year) to purchase 68,800 shares of common stock at $20 per share.
(a) Compute basic earnings per share for 2018.
(b) Compute diluted earnings per share for 2018
Amy Dyken, controller at Sweet Pharmaceutical Industries, a public company, is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for Sweetâs financial statements. Below is selected financial information for the fiscal year ended June 30, 2017.
| SWEET PHARMACEUTICAL INDUSTRIES | ||
| Long-term debt | ||
| Notes payable, 11% | $990,000 | |
| 7% convertible bonds payable | 5,080,000 | |
| 11% bonds payable | 6,120,000 | |
| Total long-term debt | $12,190,000 | |
| Shareholdersâ equity | ||
| Preferred stock, 6% cumulative, $50 par value, 95,000 shares authorized, 23,750 shares issued and outstanding | $1,187,500 | |
| Common stock, $1 par, 10,000,000 shares authorized, 1,000,000 shares issued and outstanding | 1,000,000 | |
| Additional paid-in capital | 3,920,000 | |
| Retained earnings | 5,880,000 | |
| Total shareholdersâ equity | $11,987,500 | |
The following transactions have also occurred at Sweet.
| 1. | Options were granted on July 1, 2016, to purchase 180,000 shares at $15 per share. Although no options were exercised during fiscal year 2017, the average price per common share during fiscal year 2017 was $20 per share. | |
| 2. | Each bond was issued at face value. The 7% convertible bonds will convert into common stock at 50 shares per $1,000 bond. The bonds are exercisable after 5 years and were issued in fiscal year 2016. | |
| 3. | The preferred stock was issued in 2016. | |
| 4. | There are no preferred dividends in arrears; however, preferred dividends were not declared in fiscal year 2017. | |
| 5. | The 1,000,000 shares of common stock were outstanding for the entire 2017 fiscal year. | |
| 6. | Net income for fiscal year 2017 was $1,500,000, and the average income tax rate is 40%. |
For the fiscal year ended June 30, 2017, calculate the following for Sweet Pharmaceutical Industries.
1) Basic Earnings Per Share
2) Diluted Earnings Per Share
