On January 1, 2014, Crocker Company issued 10-year, $3,828,000 face value, 6% bo

Question

On January 1, 2014, Crocker Company issued 10-year, $3,828,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 22 shares of Crocker common stock. Crocker's net income in 2014 was $275,000, and its tax rate was 40%. The company had 102,000 shares of common stock outstanding throughout 2014. None of the bonds were converted in 2014. Compute diluted earnings per share for 2014. (Round answer to 2 decimal places, e.g. $2.55.) Diluted earnings per share Compute diluted earnings per share for 2014, assuming the same facts as above, except that $1,020,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 5 shares of Crocker common stock. (Round answer to 2 decimal places, e.g. $2.55.) Diluted earnings per share

Explanation / Answer

a) No of shares to be issued to convert bonds=3828000/1000*22 84216 Shares Total Outstanding Shares 102000 Total No Of Shares Outstanding(Diluted) 186216 Net Income 275000 Interest on Bonds 229680 Tax On Interest(@40%) 91872 Net Interest to be added To Income 137808 Total Income to Consider For Diluted Share Calculation 412808 Diluted Earning Pershare=Diluted Income/Diluted No. of Shares 412808/186216 2.216823 b) No. of Shares to be issued to Convert Preffered Shares=1020000/100*5 51000 Total No. of Outstanding Shares 102000 Total No of Outstanding Shares(Diluted) 153000 Net Income 275000 Add: Preffered Dividend 61200 Adjusted Income(Diluted) 336200 Diluted Earning per share=Diluted Income/Diluted No. of Shares 336200/153000 2.197386

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