Reference no: EM13176336

Plymouth Corporation has accumulated the following information related to its 2013 earnings per share.

1. Net income for 2013 is $150,500.

2. Bonds payable: On January 1, 2013, the company issued 10%, $200,000 bonds at 110. Premium amortization in 2013 is $1,000. Each $1,000 bond is convertible into 22 shares of common stock. To date, no bonds have been converted.

3. Bonds payable: On December 31, 2011, the company issued $540,000 of 5.8% bonds at par value. Each $1,000 bond is convertible into 11.6 shares of common stock. To date, no bonds have been converted.

4. Preferred stock: On July 3, 2012 Plymouth issued 3,800 shares of 7.5%, $100 par preferred stock at $108 per share. Each share of preferred stock is convertible into 2.45 shares of common stock. To date, no preferred stock has been converted.

5. Common stock: At the beginning of 2013, 25,000 shares were outstanding. On August 1, 7,000 additional shares were issued. On September 30, 4,000 shares were issued to executives of the firm as an outright grant of stock. On November 20, 2,000 shares were reacquired as treasury stock.

6. Compensatory stock options: Options to acquire common stock at a price of $33 per share were outstanding during all of 2013. Currently, 4,000 shares may be acquired. To date no options have been exercised. The unrecognized compensation cost (net of tax) related to these options is $5 per share.

7. Miscellaneous: Stock market prices on common stock averaged $41 per share during 2013 and the 2013 ending stock price was $40 per share. The corporate income tax rate is 30%.

Required:

1. Calculate basic earnings per share, carefully showing all of your work.

2. Calculate diluted earnings per share, carefully showing all of your work.

3. How would your answers in parts 1 and 2 change if 50 of the 5.8% bonds discussed in section (3) above were converted on October 1, 2013? Show your work.