* Question 1 On January 1, 2017, Blossom Inc. issued $2.00 million of face value

Question

* Question 1 On January 1, 2017, Blossom Inc. issued $2.00 million of face value, five-year, 6% bonds at par. Each $1,000 bond is convertible into 16 common shares. Blossom's net income in 2017 was $245,000, and its tax rate was 25%. The company had 90,000 common shares outstanding throughout 2017. None of the bonds were exercised in 2017. For simplicity, ignore the requirement to record the bonds' debt and equity components separately, Calculate diluted earnings per share for the year ended December 31, 2017. (Round answer to 2 decimal places, e.g. 15.25.) Diluted earnings per share Calculate diluted earnings per share for 2017, assuming the same facts as above, except that $1.60 million of 6% cumulative convertible preferred shares was issued instead of the bonds. Each $100 preferred share is convertible into 3 common shares. (Round answer to 2 decimal places, e.g. 15.25.) Diluted earnings per share

Explanation / Answer

Part-1 Part-2 Computation of Adjusted Net Income Computation of Adjusted Net Income Increase in Income due to interest Saving $120,000 Increase in Income due to Dividend on Preferred Share $96,000 ($2000000*6%) ($1600000*6%) Less: Loss on Tax Expense @25 $30,000 Existing Net Income $245,000 Net Increase income (a) $90,000 Adjusted Net Income $341,000 Existing Net Income (b) $245,000 Adjusted Net Income (a+b) $335,000 Computation of Adjusted No. of Outstanding Share Computation of Adjusted No. of Outstanding Share Share issued against Convertible Bond            32,000 Share issued against Convertible Bond      48,000 ($2000000/$1000*16) ($1600000/$100*3) Existing Common Share            90,000 Existing Common Share      90,000 Adjusted No of Common Share outstanding          122,000 Adjusted No of Common Share outstanding    138,000 Computation of Diluted Earning Computation of Diluted Earning Adjusted Net Income $335,000 Adjusted Net Income $341,000 Adjusted No. of Share Outstanding          122,000 Adjusted No. of Share Outstanding    138,000 Diluted Earning $2.75 Diluted Earning $2.47

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