Tama Company\'s capital structure consists of common stock and convertible bonds

Question

Tama Company's capital structure consists of common stock and convertible bonds. At the beginning of 2013, Tama had 15,000 shares of common stock outstanding; an additional 4,500 shares were issued on May 4. The 7% convertible bonds have a face value of $80,000 and were issued in 2010 at par. Each $1,000 bond is convertible into 25 shares of common stock; to date, none of the bonds have been converted. During 2013, the company earned net income of $79,200 and was subject to an income tax rate of 30%.

Required:

Compute the 2013 diluted earnings per share. If required, round your answer to the nearest cent.

$ per share

Explanation / Answer

Compute the 2013 diluted earnings per share. If required, round your answer to the nearest cent.

diluted earnings per share = (79200+80000*7%*0.7)/(15000*12/12 + 4500*8/12 + 80000/1000*25)

diluted earnings per share = 83120/20000

diluted earnings per share = $ 4.156

diluted earnings per share = $ 4.16

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