Reference no: EM133128777
Question 1 - On January 1, 2020, Indigo Company issued 10-year, $1,900,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 14 shares of Indigo common stock. Indigo's net income in 2020 was $509,850, and its tax rate was 20%. The company had 99,000 shares of common stock outstanding throughout 2020. None of the bonds were converted in 2020.
(a) Compute diluted earnings per share for 2020.
(b) Compute diluted earnings per share for 2020, assuming the same facts as above, except that $990,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 5 shares of Indigo common stock.
Question 2 - On January 1, 2020, Indigo Company issued 10-year, $1,900,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 14 shares of Indigo common stock. Indigo's net income in 2020 was $509,850, and its tax rate was 20%. The company had 99,000 shares of common stock outstanding throughout 2020. None of the bonds were converted in 2020.
(a) Compute diluted earnings per share for 2020.
(b) Compute diluted earnings per share for 2020, assuming the same facts as above, except that $990,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 5 shares of Indigo common stock.
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