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Compute basic and diluted EPS. And know if a convertible security is anti-dilutive. Canyon Corporation has...

Compute basic and diluted EPS. And know if a convertible security is anti-dilutive.

Canyon Corporation has 200,000 shares of common stock outstanding throughout 2018. In addition, the corporation has 3,000, 20-year, 9% bonds issued at par in 2016. Each $500 bond is convertible into 10 shares of common stock after 9/23/19. During the year 2018, the corporation earned $700,000 after deducting all expenses. The tax rate was 40%. Compute the basic and diluted EPS values. Determine if the bonds are an anti-dilutive security. Why or why not?

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Answer #1
Compute basic and diluted earnings per share for 2018.
Net income (Assume after tax net income ) $ 700,000
Number of shares                         2,00,000
Basic earning per share ($700,000/200,000) $3.50
Earnings assuming bond conversion($700,000+(500*3000*9%*60%)) $ 781,000
Number of shares assuming bond conversion(200,000+(3000*10)                         2,30,000
diluted earnings per share(781,000/230,000) $3.39
diluted earnings per share<Basic earning per share,Therefore the bonds are not antidilutive,and earnings per common share outstanding of $3.39 should be reported.
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