1. In 2016, Kingbird Enterprises issued, at par, 60 $1,000, 8% bonds, each convertible into 100 shares of common stock. Kingbird had revenues of $17,100 and expenses other than interest and taxes of $10,000 for 2017. (Assume that the tax rate is 40%.) Throughout 2017, 1,600 shares of common stock were outstanding; none of the bonds was converted or redeemed.

(a) Compute diluted earnings per share for 2017.

(b) Assume the same facts as those assumed for part (a), except that the 60 bonds were issued on September 1, 2017 (rather than in 2016), and none have been converted or redeemed. Compute diluted earnings per share for 2017.

(c) Assume the same facts as assumed for part (a), except that 20 of the 60 bonds were actually converted on July 1, 2017. Compute diluted earnings per share for 2017

2. On January 1, 2017, Stellar Company issued 10-year, $1,860,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 15 shares of Stellar common stock. Stellars net income in 2017 was $302,000, and its tax rate was 40%. The company had 92,000 shares of common stock outstanding throughout 2017. None of the bonds were converted in 2017.

(a) Compute diluted earnings per share for 2017.

(b) Compute diluted earnings per share for 2017, assuming the same facts as above, except that $920,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 5 shares of Stellar common stock.