6. Earnings per Share with Convertible Bonds

On January 1, 2022, Omaha Company issued, at par, 700 $1,000 6% bonds. Each bond is convertible into 10 shares of common stock. Omahas net income for 2022 was $600,000. The tax rate was 20%. Throughout 2022, 100,000 shares of $10 par common stock were outstanding. In addition, 1,000 shares of 5% $100 par cumulative preferred stock were outstanding. No preferred stock dividends were declared during 2022. None of the bonds were converted in 2022.

Instructions:

(a) Compute basic earnings per share for 2022.

(b) Compute diluted earnings per share for 2022.

7. Earnings per Share with Options

Lincoln Companys net income for 2022 was $800,000. The tax rate was 20%. The only potentially dilutive securities outstanding were 800 warrants issued during 2021. Each warrant can be exercised for one share of common stock at $25 per share. None has been exercised, and 100,000 shares of common stock were outstanding during 2022. In addition, 3,000 shares of 6% $100 par non-cumulative preferred stock were outstanding. Lincolns Board of Directors declares total dividends of $15,000 in 2022. The average price of Omahas common stock during 2022 was $40.

Instructions:

(a) Compute basic earnings per share for 2022.

(b) Compute diluted earnings per share for 2022.