Question

On January 1, 2017, Cullumber Company issued 10-year, $1,840,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 16 shares of Cullumber common stock. Cullumber's net income in 2017 was $273,000, and its tax rate was 40%. The company had 103,000 shares of common stock outstanding throughout 2017. None of the bonds were converted in 2017. (a) Compute diluted earnings per share for 2017. (Round answer to 2 decimal places, e.g. $2.55.) Diluted earnings per share (b) Compute diluted earnings per share for 2017, assuming the same facts as above, except that $1,030,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 5 shares of Cullumber common stock. (Round answer to 2 decimal places, e.g. $2.55.) Diluted earnings per share $. Click if you would like to Show Work for this question: Open Show Work

Answer 1

(a) Diluted Earnings per share for 2017 2 Convertiable bonds 1,840,000 3 Per Bond value 1,000 4. Bonds 1,840 5 No. of Shares per bond 16 6 Net Income 273,000 7 No. of shares - converted 29,440 8 Outstanding shares 103,000 9 Total Shares 132,440 10 11 Diluted Earnings per share =Net Income / Total Shares =$273,000 / 397,000 shares 2.06 15 (b) Diluted Earnings per share for 2017 16 Convertiable preferred stock $ 1,030,000 17 Per preferred stock value $ 100 18 Preferred shares 10,300 19 No. of Shares per preferred 20 Net Income $ 273,000 21 No. of shares - converted 51,500 22 Outstanding shares 103,000 23 Total Shares 154,500 24 26 25 Diluted Earnings per share =Net Income / Total Shares =$273,000 / 397,000 shares S 1.77

16 1. (a) Diluted Earnings per share for 2017 2 Convertiable bonds 1840000 3 Per Bond value 1000 4. Bonds =B2/B3 5 No. of Shares per bond 6 Net Income 273000 7 No. of shares - converted =B4*B5 8 Outstanding shares 103000 9 Total Shares =B7+B8 10 11 Diluted Earnings per share =Net Income / Total Shares =$273,000 / 397,000 shares 13 -B6/B9 12 15 (b) Diluted Earnings per share for 2017 16 Convertiable preferred stock 1030000 17 Per preferred stock value 100 18 Preferred shares =B16/B17 19 No. of Shares per preferred 20 Net Income 273000 21 No. of shares - converted =B18*B19 22 Outstanding shares 103000 23 Total Shares =B21+B22 5 24 26 25 Diluted Earnings per share =Net Income / Total Shares =$273,000 / 397,000 shares =B20/B23 28

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