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    Diluted earnings per share

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    At December 31, 2005, Company "A" had 900,000 common shares outstanding. In addition, the company "A" had $10,000,000 of 6% convertible bonds outstanding at December 31, 2005, which are convertible into 600,000 common shares. On Sept. 1, 2006, an additional 300,000 common shares were issued. No bonds were converted in 2006. The net income for the year ended December 31, 2006, was $3,750,000. Assuming the income tax rate was 30%, what should be the diluted earnings per share for the year ended December 31, 2006?

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    Solution Summary

    The solution examines diluted earnings per share for a company during the year. The income tax rate is 30%.

    $2.19

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