Computing EPS: Convertible Debt

Shaffer Corporation issued 100, $1,000, 10% convertible bonds in the prior year at face value. Each bond is convertible into 100 shares of common stock. The companys net income for the current year is $1,824,000 ($2,432,000 before tax). Excluding the convertible bonds, average common shares outstanding for the year were 1,010,000.

Note: In the following calculations, enter the earnings per share amounts in dollars and cents, rounded to the nearest penny.

a. Compute basic EPS.

b. Compute diluted EPS.

	Net Income Available to Common Stockholders	Weighted Avg. Common Shares Outstanding	Per Share
Basic EPS	Answer	Answer	Answer
Diluted EPS	Answer	Answer	Answer

c. How do the answers to parts a and b change if the bonds were issued on July 1?

	Net Income Available to Common Stockholders	Weighted Avg. Common Shares Outstanding	Per Share
Basic EPS	Answer	Answer	Answer
Diluted EPS	Answer	Answer	Answer

d. Ignoring part c, how do the answers to parts a and b change if one-half of the bonds were converted on July 1? Hint: First adjust net income to reflect six instead of twelve months of after-tax interest expense.

d. Ignoring part c, how do the answers to parts a and b change if one-half of the bonds were converted on July 1 ? Hint: First adjust net income to reflect six instead of twelve months of after-tax interest expense