Question

# On January 1, 2017, Andrew and Sons issued 10-year, \$2,060,000 face value, 6% bonds, at par....

On January 1, 2017, Andrew and Sons issued 10-year, \$2,060,000 face value, 6% bonds, at par. Each \$1,000 bond is convertible into 16 shares of Andrew common stock. Andrew’s net income in 2017 was \$294,000, and its tax rate was 40%. The company had 101,000 shares of common stock outstanding throughout 2017. None of the bonds were converted in 2017.

(a) Compute diluted earnings per share for 2017. (Round answer to 2 decimal places, e.g. \$2.55.)

 Diluted earnings per share \$

(b) Compute diluted earnings per share for 2017, assuming the same facts as above, except that \$1,010,000 of 6% convertible preferred stock was issued instead of the bonds. Each \$100 preferred share is convertible into 5 shares of Andrew common stock. (Round answer to 2 decimal places, e.g. \$2.55.)

 Diluted earnings per share \$

 Requirement a: Computation of Diluted Earnings per share: Net Income 294000 Net Income before taxes (294000/(100-40)%) 490000 Add: Interest on Convertible Bonds (2060000*6%) 123600 Adjusted Net Income 613600 Less: Taxes (40%) 245440 Adjusted Net Income available to Common Stockholders 368160 Number of Shares ((2060000*16/1000)+101000) 133960 Diluted Earnings per share (368160/133960) 2.75 Requirement b: Computation of Diluted Earnings per share: Net Income 294000 Number of Shares ((1010000*5/100)+101000) 151500 Diluted Earnings per share (294000/151500) 1.94