Exercise 16-24 The Marigold Corporation issued 10-year, $4,440,000 par, 7% calla

Question

Exercise 16-24 The Marigold Corporation issued 10-year, $4,440,000 par, 7% callable convertible subordinated debentures on January 2, 2017, The bonds have a par value of $1,000, with interest payable annually. The current conversion ratio is 14:1, and in 2 years it will increase to 16:1. At the date of issue, the bonds were sold at 98. Bond discount is amortized on a straight-line basis. Marigold's effective tax was 35%. Net income in 2017 was $7,950,000, and the company had 2,075,000 shares outstanding during the entire year (a) Compute both basic and diluted earnings per share. (Round answers to 2 decimal places, e.g. $2.55.) Basic earnings per share s Diluted earnings per shares Click if you would like to Show Work for this question: Open Show Work

Explanation / Answer

Net income for year                                                        $7,950,000

Add: Adjustment for interest (net of tax) $207,792*

                                                                                        $8,157,792

*Maturity value                                                                $4,440,000

Stated rate X 7%

Cash interest                                                                      310,800

Discount amortization

[(1.00 – .98) X $4,440,000 X 1/10] 8,880

Interest expense 319,680

1 – tax rate (35%) X .65

After-tax interest $207,792

$4,440,000/$1,000 = 4,440 debentures

Increase in diluted earnings per share denominator: 4,440 x 16=71,040

Earnings per share:

Basic EPS $7,950,000 ÷ 2,075,000 = $3.83

Diluted EPS $8,157,792 ÷ 2,146,040 = $3.80

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.