Reference no: EM131830235
Problem - EPS with Convertible Bonds and Preferred Stock
On January 1, 2012, Lindsey Company issued 10-year, $3,000,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 15 shares of Lindsey common stock. Lindsey's net income in 2013 was $240,000, and its tax rate was 40%. The company had 100,000 shares of common stock outstanding throughout 2012. None of the bonds were converted in 2012.
Instructions
(a) Compute diluted earnings per share for 2012.
(b) Compute diluted earnings per share for 2012, assuming the same facts as above, except that $1,000,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 5 shares of Lindsey common stock.
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