E15.26 (LO 1, 5) (EPS with Convertible Bonds and Preference Shares) On January 1, 2025, Lund SA issued 10-year, €3,000,000 face value, 6% bonds, at par. Each €1,000 bond is convertible into 15 ordinary shares of Lund. Lund’s net income in 2026 was €240,000, and its tax rate was 40%. Interest expense on the liability component in 2026 was €210,000. The company had 100,000 ordinary shares outstanding throughout 2025. None of the bonds were converted in 2025.

Instructions

a. Compute diluted earnings per share for 2025.

b. Compute diluted earnings per share for 2025, assuming the same facts as above, except that

€1,000,000 of 6% convertible preference shares were issued instead of the bonds. Each €100 preference share is convertible into 5 ordinary shares of Lund.