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E16-20 - = $5,460 = 2,000 6,000 8,000 2 Revenues Expenses...

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E16-20 (LO 7) issued, at par, 60 $1,000, 8% bonds, each convertible into 100 shares of common stock. Chirac had revenues of $17,500 and expenses other than interest and taxes of $8,400 for 2007. (Assume that the tax rate is 40%.) Throughout 2007, 2,000 shares of common stock were outstanding; none of the bonds was converted or redeemed. Instructions 1 Compute diluted earnings per share for 2007. 2 Assume the same facts as those assumed for part (a), except that the 60 bonds were issued on September 1, 2007 (rather than in 2006), and none have been converted or redeemed 3 Assume the same facts as assumed for part (a), except that 20 of the 60 bonds were actually converted on July 1, 2007. SOLUTIONS 1 Revenues Expenses Other than interest Bond interest (60 X $1,000 X .08) Income before income taxes Income taxes (40%) Net income Diluted earnings per share: $2,580 + (1 - .40)($4,800)
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Unformatted text preview: = $5,460 = 2,000 + 6,000 8,000 2 Revenues Expenses: Other than interest Bond interest (60 X $1,000 X .08 X 4/12) Income before income taxes Income taxes (40%) Net income Diluted earnings per share: $4,500 + (1–.40)($1,600) = $5,460 = 2,000 + (6,000 X 1/3 yr.) 4,000 3 Revenues Expenses: Other than interest (EPS with Convertible Bonds, Various Situations) In 2006 Chirac Enterprises Bond interest (60 X $1,000 X .08 X 1/2 Bond interest (40 X $1,000 X .08 X 1/2) Income before income taxes Income taxes (40%) Net income Diluted earnings per share: $3,060 + (1–.40)($4,000) = $5,460 = 2,000 + (2,000 X 1/2 yr.) + 4,000 + (2,000 X 1/2) 8,000 $17,500 $8,400 4,800 13,200 4,300 1,720 $2,580 $0.68 $17,500 $8,400 1,600 10,000 7,500 3,000 $4,500 $1.37 $17,500 $8,400 2,400 1,600 12,400 5,100 2,040 $3,060 $0.68...
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