Answer:
Lancaster Inc.
a) The number of shares to be used for calculating:
(1) Basic earnings per share = 1,200,000 (800,000 + 400,000)
(2) Diluted earnings per share shares = 1,224,000 (1,200,000 + 24,000)
(b) The earnings figures to be used for calculating:
(1) Basic earnings per share = $1,540,000
(2) Diluted earnings per share = $1,540,000
Explanation:
a) Data and Calculations:
June 1, 2018, Number of shares issued = 800,000
April 1, 2020, additional shares issued = 400,000
July 1, 2020, 8% convertible bonds = $600,000
Conversion ratio = $1,000 bonds to 40 shares
= $600,000/1,000 * 40 = 24,000
After-tax net income = $1,540,000
Tax rate = 20%
Before tax income = $1,925,000 ($1,540,000/(1 - 0.2))
Before Bonds interest income = $2,092,391 ($1,925,000/(1 - 0.08))
