In: Accounting
The Rockstar Corporation issued 10-year $900,000 par 6% convertible bonds on January 1, 2018 at 98. The bonds have a par value of $1,000 with interest payable annually. Each bond is convertible into 10 shares of common stock; in two years this ratio will increase, meaning that each bond will be convertible into 30 shares of common stock. Assume Rockstar uses straight-line amortization for its bonds and that its effective tax rate is 35%. Net income in 2018 is $2,600,000 and the firm had 1,000,000 shares of common stock outstanding during the entire year. Compute diluted EPS to the 4th decimal place.Please show all calculations
Calculation:
Particulars | Amount | Amount |
Net Income | $ 26,00,000 | |
Interest on Debentures | $ 54,000.00 | |
Add: Interest Amortized | $ 1,800.00 | |
Total Interest Expense | $ 55,800.00 | |
Less: Tax on Interest | $ (19,530.00) | $ 36,270 |
Total Diluted Income | $ 26,36,270 | |
No. of Common Shares | 10,00,000 | |
Convertible Debenture Shares | 9,000 | |
Diluted No. of Share | 10,09,000 | |
Diluted EPS | $ 2.6128 |