2. Assume that the following data relative to Kane Company for 2018 is available

Question

2. Assume that the following data relative to Kane Company for 2018 is available: Net Income (Tax rate of 30%) No dividends were declared in 2018 $2,900,000 Jan. 1. 2018. Beginning number Feb. 1.2018, Purchase of treasury shares June 1, 2018, Stock split 2-1 Oct. 1, 2018, Issuance of shares (80,000) 820,000 100,000 Cumulative 900,000 820,000 1,640,000 1.740,000 ferred Stock Sold at par, convertible into 200,000 shares of common (adjusted for split). $1,200,000 Exercisable at the option price of $30 per share. Average market price in 2018, S32 (market price and option price adjusted for split). 50,000 shares ds at par. Face value $1,000 per bond. Each bond can be converted into 90 shares of common stock. (adjusted for split).

Explanation / Answer

Yes, the Bond is Dilutive.

Since each of the Bond is Convertible into 90 Shares of Common Stock.

So after conversion, the bondholders will dilute the earnings of the present shareholders.

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