In 2010, Buraka Inc. issued $75,000 of 8% bonds at par, with each $1,000 bond being convertible into 100 common shares. The company had revenues of $17,500 and expenses of $8,400 for 2011, not including interest and taxes (assume a tax rate of 40%). Throughout 2011, 2,000 common shares were outstanding, and none of the bonds were converted or redeemed. (For simplicity, assume that the convertible bonds’ equity element is not recorded.)
(a) Calculate diluted earnings per share for the year ended December 31, 2011.
(b) Repeat the calculation in (a), but assume that the 75 bonds were issued on September 1, 2011 (rather than in 2010), and that none have been converted or redeemed.
(c) Repeat the calculation in (a), but assume that 25 of the 75 bonds were converted on July 1, 2011.