In 2013, Chirac Enterprises issued, at par, 75 $1,020, 7% bonds, each convertibl

Question

In 2013, Chirac Enterprises issued, at par, 75 $1,020, 7% bonds, each convertible into 100 shares of common stock. Chirac had revenues of $20,000 and expenses other than interest and taxes of $9,170 for 2014. (Assume that the tax rate is 40%.) Throughout 2014, 2,420 shares of common stock were outstanding; none of the bonds was converted or redeemed.

(a) Compute diluted earnings per share for 2014. (Round answer to 2 decimal places, e.g. $2.55.)

(b) Assume the same facts as those assumed for part (a), except that the 75 bonds were issued on September 1, 2014 (rather than in 2013), and none have been converted or redeemed. (Round answer to 2 decimal places, e.g. $2.55.)

=?

(c) Assume the same facts as assumed for part (a), except that 25 of the 75 bonds were actually converted on July 1, 2014. (Round answer to 2 decimal places, e.g. $2.55.)

=?

Explanation / Answer

REVENUE $20,000.00 LESS:-EXPENSES OTHER THAN INTEREST & TAX ($9,170.00) EBIT $10,830.00 LESS:-INTEREST [75*(1020*7%)] ($5,355.00) PBT $5,475.00 LESS:- TAX @ 40% ($2,190.00) PAT $3,285.00 a) DILUTED EARNIGS PER SHARE = (PAT + AFTER TAX INTEREST IN CONVERTIVLE BOND)/WEIGHTED AVERAGE NO. OF COMMON SHARES OUTSTANDING DURING THE PERIOD = [3285 + (5355*0.6)] / [2420 + (75*100)] $3,213.00 $0.66 $6,498.00 = $0.66 PER SHARE $9,920.00 b) REVENUE $20,000.00 LESS:-EXPENSES OTHER THAN INTEREST & TAX ($9,170.00) EBIT $10,830.00 LESS:-INTEREST [75*(1020*7%)*4/12] ($1,785.00) PBT $9,045.00 LESS:- TAX @ 40% ($3,618.00) PAT $5,427.00 DILUTED EARNIGS PER SHARE = (PAT + AFTER TAX INTEREST IN CONVERTIVLE BOND)/WEIGHTED AVERAGE NO. OF COMMON SHARES OUTSTANDING DURING THE PERIOD = [5427 + (1785*0.6)] / [2420 + (75*100)*4/12] 1.320731707 = $1.320 PER SHARE c) DILUTED EARNIGS PER SHARE = (PAT + AFTER TAX INTEREST IN CONVERTIVLE BOND)/WEIGHTED AVERAGE NO. OF COMMON SHARES OUTSTANDING DURING THE PERIOD = [3285 + (5355*0.6)] / [2420 + (75*100)] $0.66 = $0.66 PER SHARE There will be no change even 25 of the 75 bonds were actually converted. Because all bonds need to be redeemed.

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