Asked by Tabibur Rahman on May 03, 2024
Verified
The following information has been provided to you by the Smith Corporation for the year ending December 31,2015:
• The numerator used in the calculation of basic earnings per share was $797,000.
• Cash dividends were paid to the common shareholders.
• 8% convertible bonds with a par value of $1,000,000 were issued on July 1,2015.
• The corporation's marginal income tax rate is 40%.
• 6% convertible preferred stock with a par value of $800,000 were outstanding during the entire year.
Assuming that both the bonds and preferred stock are dilutive,what is the numerator that should be used in the calculation of diluted earnings per share?
A) $893,000
B) $869,000
C) $773,000
D) $821,000
Convertible Bonds
Bonds that can be converted into a predetermined number of the issuing company's shares, usually at the discretion of the bondholder.
Diluted Earnings
Earnings per share (EPS) calculated using the maximum potential number of shares that could be outstanding if all sources of conversion, such as convertible bonds or employee stock options, are exercised.
Marginal Income Tax Rate
The percentage of tax applied to your income for each tax bracket in which you qualify, essentially the rate at which the last dollar of your income is taxed.
- Calculate diluted earnings per share including the impact of convertible securities.
Verified Answer
JG
Jeron GallimoreMay 05, 2024
Final Answer :
B
Explanation :
$797,000 + $24,000 ($1,000,000 × .08 × 6/12 × .60)+ 48,000 ($800,000 × .06)= $869,000
Learning Objectives
- Calculate diluted earnings per share including the impact of convertible securities.