Exercise 1622 In 2016 Bridgeport Enterprises issued at par 6

Exercise 16-22 In 2016, Bridgeport Enterprises issued, at par, 60 $1,000, 8% bonds, each convertible into 100 shares of common stock. Bridgeport had revenues of $18,500 and expenses other than interest and taxes of $9,400 for 2017. (Assume that the tax rate is 4096) Throughout 2017, 2,200 shares of common stock were outstanding; none of the bonds was converted or redeemed. (a) Compute diluted earnings per share for 2017. (Round answer to 2 decimal places, e.g. $2.55.) Earnings per share (b) Assume the same facts as those assumed for part (a), except that the 60 bonds were issued on September 1, 2017 (rather than in 2016), and none have been converted or redeemed. Compute diluted earnings per share for 2017. (Round answer to 2 decimal places, e.g. $2.55.) Earnings per share s (c) Assume the same facts as assumed for part (a), except that 20 of the 60 bonds were actually converted on July 1, 2017 Compute diluted earnings per share for 2017. (Round answer to 2 decimal places, e.g. $2.55.) Earnings per share s Click if you would like to Show Work for this question: Open Show Work

Solution

A)

Diluted EPS = adjusted net income/weighted average number of shares outstanding

Revenue = 18500

Less- Expenses = (9400)

Bond interest (60 * 1,000* .08)= (4,800)

Income Before taxes = $4,300

Income taxes (40%) = (1,720)

Net Income = $2,580

Diluted EPS = adjusted net income/weighted average number of shares outstanding

= 2580 + (1-.40)($4,800) / [2000 +6000]

= 5460/8000

= 0.68

B)

Revenue = 18500

Less- Expenses = (9400)

Bond interest (60 * 1,000* .08 * 4/12)= (1,600)

Income Before taxes = $7,500

Income taxes (40%) = (3,000)

Net Income = $4,500

Diluted EPS = adjusted net income/weighted average number of shares outstanding

= 4500 + (1-.40)($1,600) / [2000 + (6000*1/3)]

= 5460/4000

= $ 1.37

C)

Revenue = 18500

Less- Expenses = (9400)

Bond interest (60 * 1,000* .08 * 1/2)= (2,400)

Bond interest (40 * 1,000* .08 * 1/2)= (1,600)

Income Before taxes = $5,100

Income taxes (40%) = (2,040)

Net Income = $3,060

Diluted EPS = adjusted net income/weighted average number of shares outstanding

= 3060 + (1-.40)($4,000) / [2000 + (2000*1/2) + 4000 + (2000*1/2)]

= 5460/8000

= $ 0.68