Rockland Corporation earned net income of $300,000 in 2014 and had 100,000 shares of common stock outstanding throughout the year. Also outstanding all year was $800,000 of 10% bonds, which are convertible into 16,000 shares of common. Rockland? s tax rate is 40 percent.

Compute Rockland? s 2014 diluted earnings per share. (Round answer to 2 decimal places, e. g. $3.55.)

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Business

Quinn Saunders

16 March, 02:59

Rockland Corporation earned net income of $300,000 in 2014 and had 100,000 shares of common stock outstanding throughout the year. Also outstanding all year was $800,000 of 10% bonds, which are convertible into 16,000 shares of common. Rockland? s tax rate is 40 percent.

Compute Rockland? s 2014 diluted earnings per share. (Round answer to 2 decimal places, e. g. $3.55.)

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Answers (1)

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Genie · Answer 1

Diluted eps = $3 per share.

Explanation:

Outstanding shares = 100000 shares

Net income = $ 300000

Bond face value = $800000

Convertible in to shares = 16000 shares

tax rate = 40%.

we know that: diluted earning per share = (net income + after tax interest on convertible debt) / weighted average number of shares outstanding + diluted shares.

- After tax interest on convertible bond = 800000 * 10% = $80000 interest.

$80000 * tax rate = 80000 * 40% = 32000.

After tax interest on convertible bond = 80000-32000 = $48000.

= (300000 + 48000)

/ (100000 + 16000)

= 348000/116000

= #3 per share.