Question

On January 2, 2021, Coronado Industries issued at par $298000 of 7% convertible bonds. Each $1,000 bond is convertible into 60 shares. No bonds were converted during 2021. Coronado had 106000 shares of common stock outstanding during 2021. Coronado's 2021 net income was $168000 and the income tax rate was 25%. Coronado's diluted earnings per share for 2021 would be:________ (rounded to the nearest penny)a. $5.18 b. $4.90 c. $4.67 d. $4.53

Answer 1

Answer: $1.48

Explanation:

Coronado's diluted earnings per share for 2021 would be calculated thus:

Net interest savings = ($298000 × 7%) × (1 - 25%)

= ($298000 × 0.07) × 75%

= $15645

Weighted average common stock outstanding will be:

= 106000 + (298000/1000 × 60)

= 106000 + 17880

= 123880

Therefore, Coronado's diluted earnings per share will be:

= ($168000 + $15645) / 123880.

= $183645/123880

= $1.48