Question

Question 4 --/1 View Policies Current Attempt in Progress In 2019, Riverbed Enterprises issued, at par, 60 $1,000, 8% bonds, each convertible into 100 shares of common stock. Riverbed had revenues of $18,800 and expenses other than interest and taxes of $10,000 for 2020. (Assume that the tax rate is 20%.) Throughout 2020, 1,700 shares of common stock were outstanding; none of the bonds was converted or redeemed. (a) Compute diluted earnings per share for 2020. (Round answer to 2 decimal places, e.g. $2.55.) Earnings per share $ (b) Assume the same facts as those assumed for part (a), except that the 60 bonds were issued on September 1, 2020 (rather than in 2019), and none have been converted or redeemed. Compute diluted earnings per share for 2020. (Round answer to 2 decimal places, e.g. $2.55.) Earnings per share $ (c) Assume the same facts as assumed for part (a), except that 20 of the 60 bonds were actually converted on July 1, 2020. Compute diluted earnings per share for 2020. (Round answer to 2 decimal places, e.g. $2.55.) Earnings per share $

Answer 1

Determine the diluted earnings per share for the year 2020 as shown below: Revenues [a] Expenses other than interest and taxes [b] Interest expense (c = 60 bonds x $1,000 each x 8%] Earnings before tax [d = a - b - c] Tax expense [e = d < 20%] Earnings after tax [f=d-e] Interest after tax [g = $4,800 X (100% - 20%)] Diluted earnings [h=f+g] Number of shares of common stock outstanding [i] Convertible shares (j = 100 shares 60 debentures] Diluted number of shares [k= i + j] Diluted earnings per share [h + k] $18.800 $10,000 $4.800 $4,000 $800 $3,200 $3,840 $7,040 1,700 6,000 7,700 $0.91 Thus, the diluted earnings per share is $0.91.

(b) Determine the diluted earnings per share for the year 2020 as shown below: Revenues [a] Expenses other than interest and taxes [b] Interest expense (c = 60 bonds < $1,000 each x 8% x (4 - 12) months) Earnings before tax [d = a - b -c) Tax expense [e= d * 20%] Earnings after tax [f=d-e] Interest after tax (g = $1,600 < (100% - 20%)] Diluted earnings [h=f+g] Number of shares of common stock outstanding [i] Convertible shares (j = 100 shares x 60 debentures x (4 - 12) months) Diluted number of shares [k= i + j] Diluted earnings per share [ h k ] $18.800 $10,000 $1,600 $7,200 $1.4401 $5,760 $1.280) $7.0401 1,700 2,000 3,700 $1.90 Thus, the diluted earnings per share is $1.90.

(c) Determine the diluted earnings per share for the year 2020 as shown below: $18.800 $10.000 Revenues [a] Expenses other than interest and taxes [b] Interest expense (c) [60 bonds * $1.000 each x 8% *(6 12) months] + [40 bonds $1,000 each 8% *(6+12) months) Earnings before tax [d=a-b-c] Tax expense [e=dx 20%] Eamings after tax [f=d-e Interest after tax [g = $4.000 (100% - 20%)] Diluted earnings [h=f+g] Number of shares of common stock outstanding (i) 1.700 shares + [20 debentures x 100 shares < (6 12) months) Convertible shares 6] [100 shares x 60 debentures x (6+12) months) + (100 shares x 40 debentures x (6 +12) months) Diluted number of shares (k = i +j] Diluted earnings per share [ h k ] $4.000 $4.800 $960 $3.8401 $3,200 $7.040 2,700 5.000 7,700 S0.91 Thus, the diluted earnings per share is $0.91