Ask Question
12 July, 10:13

On January 2, 2021, L Co. issued at face value $26,000 of 4% bonds convertible in total into 2,200 shares of L's common stock. No bonds were converted during 2021. Throughout 2021, L had 2,200 shares of common stock outstanding. L's 2021 net income was $8,000. L's income tax rate is 25%. No potential common shares other than the convertible bonds were outstanding during 2021. L's diluted earnings per share for 2021 would be:

+1
Answers (1)
  1. 12 July, 10:22
    0
    Diluted EPS = $ 2.4

    Explanation:

    Diluted earnings per share (diluted EPS):

    Diluted earnings per share is the earnings made on every share of a public company that is calculated assuming that all the securities that are convertible were duly exercised.

    Formula:

    Diluted EPS = (Net income + Interest after tax) / Total outstanding shares outstanding

    As net income = $8000, Interest rate = 4%

    and Interest (Before tax) = 26000 * 0.4 = $10400

    so Interest after tax = 10400 * 0.25 = $2600

    Now calculating total shares outstanding

    Total shares outstanding = 2,200 + 2,200 = 4400 shares

    Therefore by putting the values in the above formula, we get

    Diluted EPS = (8000 + 2600) / 4400

    Diluted EPS = 10600 / 4400

    Diluted EPS = $ 2.4
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “On January 2, 2021, L Co. issued at face value $26,000 of 4% bonds convertible in total into 2,200 shares of L's common stock. No bonds ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers