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PLEASE SHOW ALL WORK AND EXPLAIN Stevens Corporation had 28,487 shares of common stock outstanding during...

PLEASE SHOW ALL WORK AND EXPLAIN

Stevens Corporation had 28,487 shares of common stock outstanding during the current calendar year. On July 1, Stevens issued 2,848 convertible bonds . Each bond had a $1,000 face value. Each bond is convertible into 50 shares of common stock. The bonds were issued at face amount and pay stated rate of 8% interest annually for 10 years. Stevens had a net income of $228,849. Stevens’ tax rate was 30%. Stevens’ Diluted EPS is ______________ (Round your answer to 2 decimal places)

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Answer #1

Ans:

Calculation of Earning Per Share:

Earning for equity share holders = $228849

Outstanding No of shares = 28487

EPS = 8.03

Calculation Of Diluted EPS:

Increase in earnings if bonds are converted into shares = [(2848*1000)*8%]*0.70

= $159488

Increase in No of share if bond are converted into shares = 2848*50 = 142400

Diluted EPS

= 228849+159488/28487+142400

= 388337/170887

= 2.27

Note: Increase in earning is saving in interest cost on bonds after taking tax effect.

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