In 2010, Buraka Enterprises issued, at par, 75 $1,000, 8% bonds, each convertible into 100 ordinary shares. The liability component of convertible bonds was $950 per bond, based on a market rate of interest of 10%. Buraka had revenues of $17,500 and expenses other than interest and taxes of $8,400 for 2011. (Assume that the tax rate is 40%.) Throughout 2011, 2,000 ordinary shares were outstanding; none of the bonds was converted or redeemed.

(a) Compute diluted earnings per share for 2011.
(b) Assume the same facts as those assumed for part (a), except that the 75 bonds were issued on September 1, 2011 (rather than in 2010), and none have been converted or redeemed.
(c) Assume the same facts as assumed for part (a), except that 25 of the 75 bonds were actually converted on July 1, 2011.

  • CreatedJune 17, 2013
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