Answer:
The correct answer is $1.2 per share.
Explanation:
According to the scenario, the computation of the given data are as follows:
Interest expense of Bonds = $20,000 × 4% = $800
Now, Interest expense of Bond, After tax = $800 × ( 1 - 50%) = $800 × 0.50
= $400
So, we can calculate the diluted earning by using following formula:
Diluted Earning = (Net income + Interest expense after tax) ÷ Total outstanding shares outstanding
Where, Total outstanding shares = 1,000 shares + 1,000 shares = 2,000 shares
By putting the value, we get
Diluted earning = ($2000 + $400 ) ÷ 2,000
= $1.2 per share
