On January 1, 2014, Crocker Company issued 10-year, $3,249,000 face value, 6% bo

Question

On January 1, 2014, Crocker Company issued 10-year, $3,249,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 19 shares of Crocker common stock. Crocker's net income in 2014 was $329,000, and its tax rate was 45%. The company had 101,000 shares of common stock outstanding throughout 2014. None of the bonds were converted in 2014. Compute diluted earnings per share for 2014. (Round answer to 2 decimal places, e.g. $2.55.) Compute diluted earnings per share for 2014, assuming the same facts as above, except that $1,010,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 10 shares of Crocker common stock. (Round answer to 2 decimal places, e.g. $2.55.)

Explanation / Answer

a)

Diluted Earning per share = (Net Income + After tax interest expenses)/( Weighted average number of outstanding share + No of convertible share of Bond)

Diluted Earning per share = ( 329000 + 3249000*6%*(1-45%))/(101000+ 3249000/1000*19)

Diluted Earning per share = $ 2.68

b)

Diluted Earning per share = (Net Income + Prefered stock dividend)/( Weighted average number of outstanding share + No of convertible share of preference share)

Diluted Earning per share = ( 329000 + 1010000*6%)/(101000+ 1010000/100*10)

Diluted Earning per share = $ 1.93

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