(EPS with Convertible Bonds and Preferred Stock) The Simon Corporation issued 10-year, $5,000,000 par, 7% callable convertible...
Question:
(EPS with Convertible Bonds and Preferred Stock) The Simon Corporation issued 10-year,
$5,000,000 par, 7% callable convertible subordinated debentures on January 2, 2007. The bonds have a par value of $1,000, with interest payable annually. The current conversion ratio is 14:1, and in 2 years it will increase to 18:1. At the date of issue, the bonds were sold at 98. Bond discount is amortized on a straightline basis. Simon’s effective tax was 35%. Net income in 2007 was $9,500,000, and the company had 2,000,000 shares outstanding during the entire year.
Instructions
(a) Prepare a schedule to compute both basic and diluted earnings per share.
(b) Discuss how the schedule would differ if the security was convertible preferred stock.
Step by Step Answer:
Intermediate Accounting 2007 FASB Update Volume 2
ISBN: 9780470128763
12th Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield