In 2019, Marigold Enterprises issued, at par, 60 $1,000, 8% bonds, each convertible into 100 shares...

In 2019, Marigold Enterprises issued, at par, 60 $1,000, 8% bonds, each convertible into 100 shares of common stock. Marigold had revenues of $16,000 and expenses other than interest and taxes of $6,700 for 2020. (Assume that the tax rate is 20%.) Throughout 2020, 2,400 shares of common stock were outstanding; none of the bonds was converted or redeemed.

(a) Compute diluted earnings per share for 2020. (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, 2020 (rather than in 2019), and none have been converted or redeemed. Compute diluted earnings per share for 2020. (Round answer to 2 decimal places, e.g. $2.55.)

Earnings per share

(c) Assume the same facts as assumed for part (a), except that 20 of the 60 bonds were actually converted on July 1, 2020. Compute diluted earnings per share for 2020. (Round answer to 2 decimal places, e.g. $2.55.)

Earnings per share

Solutions

Expert Solution

ANSWER

(a) Diluted earnings per share per 2020

	Revenue	= $16,000
	Expenses	= $ 6,700

	Earnings	= $16,000 - $6,700
		= $9,300

Interest on Bonds	= 60$10008%
		= $4,800

Diluted Earings	= $9,300+$4,800
		= $14,100

Earnings after tax	= $14,100 - 20%($14,100)
		= $11,280

Equivalent Shares	= 2400 + (60*100)
		= 8400

Diluted EPS	=$11,280/8400
		=$1.34

(b) Diluted earnings per share per 2020

	Revenue	= $16,000
	Expenses	= $ 6,700

	Earnings	= $16,000 - $6,700
		= $9,300

Interest on Bonds	= 60$10008%*4/12
		= $1,600

Diluted Earings	= $9300+$1600
		= $10,900

Earnings after tax	= $10,900 - 20%($10,900)
		= $8,720

Equivalent Shares	= 2400 + (60*100)
		= 8400

Diluted EPS	= $8,720/8400
		= $1.04

(c) Diluted earnings per share per 2020

	Revenue	= $16,000
	Expenses	= $ 6,700

	Earnings	= $16,000 - $6,700
		= $9,300

Interest on Bonds	= (60$10008%6/12) + (40$10008%6/12)
		= $4,000

Diluted Earings	= $9300+$4,000
		= $13,300

Earnings after tax	= $13,300 - 20%($13,300)
		= $10,640

Equivalent Shares	= 2400 + (20100) + (40100)
		= 8400

Diluted EPS	= $10,640/8400
		= $1.27

ekkarill92 answered 1 year ago

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