Assume that Kollins’ issued the convertible bonds described in P20-1 on February 1. Using the other information from P20- 1, complete the following.
In P20-1
Kollins Kids, Ltd. began the current year with 320,000 common shares outstanding and issued an additional 120,000 shares on August 1. The firm has $ 8,000,000, 5% convertible bonds outstanding at the beginning of the year (i. e., $ 400,000 coupon interest per year), which are convertible into 180,000 shares of common stock. The firm issued the bonds at their par value and converted them on April 1. Kollins Kids also has $ 920,000 par value, 4% convertible, noncumulative preferred stock outstanding. The preferred shares can convert into 10,000 shares of common stock and were outstanding for a full year. The firm declared dividends for the current year. There were no actual conversions of the preferred stock during the year. Kollins is subject to a 40% effective tax rate and net income is $ 2,800,000. Assume all convertible securities are dilutive.
Required
a. Compute basic and diluted earnings per share for the current year.
b. Prepare the earnings per share disclosure on the income statement beginning with net income.