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On January 1, 2020, a company issued 10-year, $800,000 face value, 7% bonds, at par. Each...

On January 1, 2020, a company issued 10-year, $800,000 face value, 7% bonds, at par. Each $1,000 bond is convertible into 20 shares of the company’s common stock. The company’s net income in 2020 was $500,000, and its tax rate was 22%. The company had 100,000 shares of common stock outstanding throughout 2020. None of the bonds were converted in 2020.

What is the numerator for computing diluted earnings per share for the company for 2020?

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Answer #1

The numerator for computing diluted earnings per share for the company for 2020 = $543,680

Explanation:

Diluted earnings per share = Adjusted net income / (Shares Outstanding + Diluted shares).

Since the given question is to find the numerator for computing diluted earnings per share, we need to compute Adjusted net income.

Net income $500,000
Add: Saving in interest (net of tax) [$800,000 * 7% (1 - 0.22)] $43,680
Adjusted net income $543,680
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