Brief Exercise 17-15 Blossom Corporation reported net income of $468,000 in 2017

Question

Brief Exercise 17-15 Blossom Corporation reported net income of $468,000 in 2017 and had 975,000 common shares outstanding throughout the year. On May 1, 2017, Blossom issued 5% convertible bonds. Each $1,000 bond is convertible into 120 common shares. Total proceeds at par amounted to $850,000, and was allocated to the liability and equity components under the residual value method. The liability component was measured first, at present value of the stream of interest payments plus present value of the bond maturity value, all discounted at 8% (the interest rate that applies to similar straight bonds). At the time of issuance, the liability component was recorded at $784,282. Blossom's tax rate is 30%. Calculate Blossom's 2017 diluted earnings per share. (Round answer to 2 decimal places, e.g. 15.25.) Diluted earnings per share $ TNK TO TEXT

Explanation / Answer

Net income........... 468000

+ adjustment for interest, net tax (850000*5%)*(1-30%)........29750

Adjusted net income................... 497750

Weighted average common shares

Common Stock................. 975000

+ convertible bonds in to common stock (850*120)......102000

Weighted average common stock......... 1077000

Diluted EPS = adjusted net income / Weighted average common stocks = 497750 / 1077000 = 0.46

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