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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 $
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Answer #1
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
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