In 2013, Chirac Enterprises issued, at par, 75 $1,030, 8% bonds, each convertibl

Question

In 2013, Chirac Enterprises issued, at par, 75 $1,030, 8% bonds, each convertible into 150 shares of common stock. Chirac had revenues of $19,100 and expenses other than interest and taxes of $8,520 for 2014. (Assume that the tax rate is 40%.) Throughout 2014, 2,080 shares of common stock were outstanding; none of the bonds was converted or redeemed. (a) Compute diluted earnings per share for 2014 (b) Assume the same facts as those assumed for part (a), except that the 75 bonds were issued on September 1, 2014 (rather than in 2013), and none have been converted or redeemed.(c) Assume the same facts as assumed for part (a), except that 25 of the 75 bonds were actually converted on July 1, 2014.

Explanation / Answer

(a)

(b)

(c)

Revenue $19100 Less: Expenses 8520 10580 Less: Interest 6180 4400 Less: tax 1760 Net Earning 2640 Diluted EPS (outstanding common stock 2080) = 2640/2080 =$1.27/share

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