On January 1, 2014, Shaylyn Limited issued $2.5 million of face value, 10-year, 7% bonds at par. Each $1,000 bond is convertible into 15 common shares. Shaylyn's net income in 2014 was $250,000, and its tax rate was 30%. The company had 100,000 common shares outstanding throughout 2014. None of the bonds were exercised in 2014. For simplicity, ignore the requirement to record the bonds' debt and equity components separately.
Instructions
(a) Calculate diluted earnings per share for the year ended December 31, 2014.
(b) Calculate diluted earnings per share for 2014, assuming the same facts as above, except that $1.5 million of 7% cumulative convertible preferred shares was issued instead of the bonds. Each $100 preferred share is convertible into four common shares.