Question

6. Earnings per Share with Convertible Bonds On January 1, 2019, Houston Company issued, at par,...

6. Earnings per Share with Convertible Bonds

On January 1, 2019, Houston Company issued, at par, 600 $1,000 6% bonds. Each bond is convertible into 10 shares of common stock. Houston’s net income for 2019 was $600,000. The tax rate was 20%. Throughout 2019, 100,000 shares of $10 par common stock were outstanding. In addition, 1,000 shares of 5% $100 par cumulative preferred stock were outstanding. No preferred stock dividends were declared during 2019. None of the bonds were converted in 2019.

Instructions:
(a) Compute basic earnings per share for 2019.
(b) Compute diluted earnings per share for 2019.

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