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EXERCISE 16-20

EXERCISE 16-20 - (c Revenues \$17,500 Expenses Other than...

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EXERCISE 16-20 (a) Revenues \$17,500 Expenses: Other than interest \$8,400 Bond interest (60 X \$1,000 X .08) 4,800 13,200 Income before income taxes 4,300 Income taxes (40%) 1,720 Net income \$ 2,580 Diluted earnings per share: \$2,580 + (1–.40)(\$4,800) = \$5,460 = \$.68 2,000 + 6,000 8,000 (b) Revenues \$17,500 Expenses: Other than interest \$8,400 Bond interest (60 X \$1,000 X .08 X 4/12) 1,600 10,000 Income before income taxes 7,500 Income taxes (40%) 3,000 Net income \$ 4,500 Diluted earnings per share: \$4,500 + (1–.40)(\$1,600) = \$5,460 = \$1.37 2,000 + (6,000 X 1/3 yr.) 4,000

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Unformatted text preview: (c) Revenues \$17,500 Expenses: Other than interest \$8,400 Bond interest (60 X \$1,000 X .08 X 1/2) 2,400 Bond interest (40 X \$1,000 X .08 X 1/2) 1,600 12,400 Income before income taxes 5,100 Income taxes (40%) 2,040 Net income \$ 3,060 Diluted earnings per share (see note): \$3,060 + (1–.40)(\$4,000) = \$5,460 = \$.68 2,000 + (2,000 X 1/2 yr.) + 4,000 + (2,000 X 1/2) 8,000 Note: The answer is the same as (a). In both (a) and (c), the bonds are assumed converted for the entire year....
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