On January 1, 2014, Crocker Company issued 10-year, $3,249,000 face value, 6% bo

Question

On January 1, 2014, Crocker Company issued 10-year, $3,249,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 19 shares of Crocker common stock. Crocker's net income in 2014 was $329,000, and its tax rate was 45%. The company had 101,000 shares of common stock outstanding throughout 2014. None of the bonds were converted in 2014. Compute diluted earnings per share for 2014. Diluted earnings per share $ Compute diluted earnings per share for 2014, assuming the same facts as above, except that $1,010,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 10 shares of Crocker common stock. Diluted earnings per share $

Explanation / Answer

(a) Net Income $329000 + 194940 (1 – .45) = $436217

Diluted earnings per share = 436217 / 101000 = $4.32

(b)

Net Income $329000 – $60600 preference dividend = $178400

Diluted earnings per share = 178400 / 202000 = $0.88

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