In 2016, Capstone Ltd. issued $50,000 of 8% bonds at par, with each $1,000 bond being convertible into 100 common shares. The company had revenues of $75,000 and expenses of $40,000 for 2017, not including interest and tax. (Assume a tax rate of 25%.) Throughout 2017, 1,000 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.)
Instructions
(a) Calculate diluted earnings per share for the year ended December 31, 2017.
(b) Repeat the calculation in part (a), but assume that the 50 bonds were issued on October 1, 2017 (rather than in 2016), and that none have been converted or redeemed.
(c) Repeat the calculation in part (a), but assume that 10 of the 50 bonds were converted on July 1, 2017.