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Homework answers / question archive / In 2012 Green Enterprises issued, at par, 40, $2,500, 12% bonds, each convertible into 100 shares of common stock
In 2012 Green Enterprises issued, at par, 40, $2,500, 12% bonds, each convertible into 100 shares of common stock. Green had revenues of $45,200 and expenses other than interest and taxes of $8,400 for 2013. (Assume that the tax rate is 30%.) Throughout 2013, 1,500 shares of common stock were outstanding, none of the bonds was converted or redeemed. Instructions (a) Compute diluted earnings per share for 2013. (b) Assume same facts as those for Part (a), except the 40 bonds were issued on August 2013 (rather than in 2012), and none have been converted or redeemed.
Answer:
a)
| DEPS= | (IAC + Interset Net of tax) /Number of outstanding shares including dilutive securities |
| IAC | Income available to common shareholders |
| Revenues | 42500 |
| (-)Expenses | -8400 |
| (-) Interest | -12000 |
| 22100 | |
| (-) Tax | -6630 |
| IAC | 15470 |
| Number dilutive bonds into shares | 40*100 |
| 4000 | |
| Oustanding shares | 1500 |
Total shares outstanding = 5500 shares
| IAC | 15470 |
| Interest Income net of tax | 12000 - 30% |
| 8400 |
| DEPS | (15470 + 8400)/(4000 + 1500) |
| 23870/5500 | |
| $4.34 |
b) Assuming Year end at december 2013.
| EPS | IAC/WANSCO | - |
| IAC | Income available to common shareholders | - |
| Revenue | 42500 | - |
| (-) Expenses | -8400 | - |
| (-) Interest | -5000 | 2500*40*12%*5/12 |
| 29100 | - | |
| (-) Tax | -8730 | - |
| IAC | 20370 | - |
| WANSCO | Weighted No.Outstanding Common shares | - |
| 1500 | Shares | |
| EPS | 20370/1500 | - |
| $13.6 | - |
