Purchase Solution

EPS with Convertible Bonds, Various Situations

Not what you're looking for?

Ask Custom Question

22. (EPS with Convertible Bonds, Various Situations) In 2003 Bonaparte Enterprises
issued, at par, 60 $1,000, 8% bonds, each convertible into 100 shares of common stock. Bonaparte had revenues of $17,500 and expenses other than interest and taxes of $8,400 for 2004. (Assume that the tax rate is 40%.) Throughout 2004, 2,000 shares of common stock were outstanding; none of the bonds was converted or redeemed.

Instructions
a. Compute diluted earnings per share for 2004.
b. Assume the same facts as those assumed for part (a), except that the 60 bonds
were issued on September 1, 2004 (rather than in 2003), and none have been
converted or redeemed.
c. Assume the same facts as assumed for part (a), except that 20 of the 60 bonds
were actually converted on July 1, 2004.

Purchase this Solution

Solution Summary

The solution explains the calculation of diluted EPS given convertible bonds

Solution Preview

(a) Diluted earnings per share for 2004
Revenues $17,500
Expenses:
Other than interest $8,400
Bond interest (60 X $1,000 X .08) 4,800 13,200
Income before income taxes 4,300
Income taxes (40%) 1,720
Net income $ 2,580
Diluted earnings per share are assuming all conversion of bonds into shares. The number of shares outstanding is 2,000. There are 60 bonds covertible into 100 shares each or a total of 6,000 shares. The total diluted number of shares are 2,000+6,000=8,000. The Net Income is 2,580. If the bonds are converted, there ...

Purchase this Solution


Free BrainMass Quizzes
Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media