On January 2, 2018, Sunland Company issued at par $9900 of 5%
bonds convertible in total into 1000 shares of Sunland's common
stock. No bonds were converted during 2018. Throughout 2018,
Sunland had 1000 shares of common stock outstanding. Sunland's 2018
net income was $4500, and its income tax rate is 25%. No
potentially dilutive securities other than the convertible bonds
were outstanding during 2018. Sunland's diluted earnings per share
for 2018 would be (rounded to the nearest penny)
Savings in interest if bonds are converted net of tax | (9900*.05 ) (1-.25 ) |
$495 * 0.75 | |
$371.25 | |
Total earnings if bonds are converted | $4500+ $371.25 |
$4,871.25 | |
Total shares outstanding will be | 1000 +1000 |
2000 | |
Diluted E.P.S for 2018 | $4871.25 / 2000 |
$2.44 per share |
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