Problem #10: Basic and Diluted EPS Calculations (involving only a single debt security):

In 2018 the Gremlin Enterprises issued, at par, 150, $1,000, 10% bonds, each convertible into 100 shares of common stock. Gremlin had revenues of $40,000 and expenses other than interest and taxes of $18,000 for 2019. (Assume that the tax rate is 40%.) Throughout 2019, 4,000 shares of common stock were outstanding; none of the bonds were converted or redeemed. Gremlins Net Income is calculated as follows:

Revenues		$60,000
Expenses		$18,000
Bond Interest Expense		$15,000	(150 x 1,000 x 10%)
= Income before taxes:		$27,000
- Income Tax Expense (40%)		$10,800
= Net Income		$16,200

a) Calculate the basic earnings per share for 2019:

b) Calculate the diluted earnings per share for 2019: