Answer:
Explanation:
1.
Net income $300,000
Add: interest savings, net of tax [2,000,000*6%(100%-40%)] $72,000
Net income after dilution $372,000
Shares outstanding during 2014 100,000
Add: Diluted shares [(2,000,000/1000)*15] 30,000
Total outstanding shares after dilution 130,000
Diluted earnings per share $2.86 [372,000/130,000]
2.
Net income $300,000
Less: Preferrence dividend after conversion $0
Net income after dilution $300,000
Shares oustanding during 2014 100,000
Add: Diluted shares [(1,000,000/$100)*5] 50,000
Total outstanding shares after dilution 150,000
Diluted earnings per share $2 [300,000/150,000]
a) $2.86
b) $2
