Ask Question
BusinessBusiness
27 November, 16:46

On January 1, 2017, Culver Company issued 10-year, $2,140,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 14 shares of Culver common stock. Culver's net income in 2017 was $296,000, and its tax rate was 40%. The company had 91,000 shares of common stock outstanding throughout 2017. None of the bonds were converted in 2017. (a) Compute diluted earnings per share for 2017.

+2
Answers (1)
  1. 27 November, 20:43
    0
    a) diluted earnings per share = 0

    Explanation:

    Diluted earnings per share (DEPS) is a recalculation of the basic EPS. The difference between DEPS and EPS is, EPS represents the current position of earnings per share. No changes in number shares and/or earnings in the future are incorporated in the basic EPS.

    Whereas DEPS is a representation of not only the current position of earnings and shares but also includes the commitments an entity has already made whose occurrence may result in an increase/decrease in the amount of earnings and/or number of shares. For example, in the question Culver Company has issued 10-year convertible bonds which right now have no impact on basic EPS but if in the future these bond holders exercise their right of conversion, this would result in an increase in number of ordinary shares hence decreasing/diluting the basic EPS. The entities use DEPS to show shareholders the impact of such commitments on the basic EPS to improve their decision making.

    So in 2017 none of the bonds were converted therefore no diluted earnings per share is calculated in 2017.

    If all of the bonds were converted in 2017 the DEPS would have been calculated as follows:

    The formula for calculating DEPS is as follows;

    DEPS = (Net income + interest savings) : number of ordinary shares + increase in ordinary shares as a result of conversion.

    Tax savings as a result of conversion=$128400 ($2140000*6%). Because if bond holders convert into ordinary shares then Culver company will not have to pay them interest and hence the amount of interest is saved.

    Increase in ordinary shares upon conversion = 29960 ($2140000:$1000=2140 bonds. Each bond is convertible into 14 shares therefore, 2140*14=29960).

    Now Lets calculate DEPS as follows;

    DEPS = ($296000+$128400) : 91000+29960

    DEPS = $424400:120960

    DEPS = $3.5
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “On January 1, 2017, Culver Company issued 10-year, $2,140,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 14 shares ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers
You Might be Interested in
glass co. had net income of $70,000 during the year. Depreciation was $10,000. the following information is available: accounts receivable increase (sale price $100,000) non trade notes payable increased by 50,000, equipment purchases increased by
Answers (1)
Transmissions are delivered to the fabrication line five at a time. It takes two hours for transmissions to be delivered.
Answers (1)
On May 9, 2019, Glenna purchases 500 shares of Ignaz Company stock for $54,400. On June 30, 2019, she writes a call option on the stock, giving the grantee the right to buy the stock for $68,000 during the following 12-month period.
Answers (1)
What is product market?
Answers (1)
Mary's Music Store reported net income of $142,000. Beginning balances in Accounts Receivable and Accounts Payable were $25,500 and $18,500, respectively. Ending balances in these accounts were $30,500 and $12,200, respectively.
Answers (1)
New Questions in Business
George and Dan's political consulting firm is losing money, but it is more than covering its variable costs. What is the most accurate statement we can make about it?
Answers (1)
The company or organization identified in Chapter 11, Analytics in Action, is Group of answer choices Centers for Disease Control and Prevention Petrobras Intercontinental Hotels MeadWestvaco Corporation
Answers (1)
Davita Spencer is a manager at Half Dome Asset Management. She can generate an alpha of 2% a year up to $100 million. After that her skills are spread too thin, so she cannot add value, and her alpha is zero.
Answers (1)
Lusk Corporation produces and sells 15,700 units of Product X each month. The selling price of Product X is $27 per unit, and variable expenses are $21 per unit. A study has been made concerning whether Product X should be discontinued.
Answers (1)
ichael McNamee is the proprietor of a property management company, Apartment Exchange, near the campus of Penscola State College. The business has cash of $8,000 and furniture that cost $9,000 and has a market value of $13,000.
Answers (1)
Home » Business » On January 1, 2017, Culver Company issued 10-year, $2,140,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 14 shares of Culver common stock. Culver's net income in 2017 was $296,000, and its tax rate was 40%.
Sign Up Forgot Password?