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Chapter 16: Q13BE. (page 875)

Rockland Corporation earned net income of \(300,000 in 2017 and had 100,000 shares of common stock outstanding throughout the year. Also outstanding all year was \)800,000 of 9% bonds, which are convertible into 16,000 shares of common. Rockland鈥檚 tax rate is 40%. Compute Rockland鈥檚 2017 diluted earnings per share.

Short Answer

Expert verified

Rockland鈥檚 2017 diluted earnings per share are $2.96.

Step by step solution

01

Information is given as follows

Net Income: $300,000

Common stock outstanding $100,000 shares

Outstanding all year $800,000 of 9% bonds

Tax Rate: 40%

Adjustment for interest, net of tax [$72,000* X (1 鈥� .40)]

02

Computation of diluted earnings per share

Net income

$300,000

Adjustment for interest, net of tax

$43,200

Adjusted net income

$343,200

Weighted-average number of shares outstanding adjusted for dilutive securities (100,000 + 16,000)

梅116,000

Diluted EPS

$2.96

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Most popular questions from this chapter

Angela Corporation issues 2,000 convertible bonds at January 1, 2016. The bonds have a 3-year life, and are issued at par with a face value of \(1,000 per bond, giving total proceeds of \)2,000,000. Interest is payable annually at 6%. Each bond is convertible into 250 ordinary shares (par value of $1). When the bonds are issued, the market rate of interest for similar debt without the conversion option is 8%.

Instructions

(a) Compute the liability and equity component of the convertible bond on January 1, 2016.

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