Computing EPS: Convertible Debt

Shaffer Corporation issued 260, $1,000, 10% convertible bonds in 2019 at face value. Each bond is convertible into 100 shares of common stock. Shaffer's net income for 2020 is $5,107,200 ($6,809,600 before tax). Considering all factors except convertible bonds, average common shares outstanding for 2020 were 2,626,000.

• Note: In the following calculations, round earnings per share amounts to two decimal places.

a. Compute basic EPS.

b. Compute diluted EPS.

	Net Income Available to Common Stockholders	Weighted Avg. Common Shares Outstanding	Per Share
Basic EPS	Answer	Answer	Answer
Diluted EPS	Answer	Answer	Answer

c. How do the answers to parts a and b change if the bonds were issued on July 1, 2020?

	Net Income Available to Common Stockholders	Weighted Avg. Common Shares Outstanding	Per Share
Basic EPS	Answer	Answer	Answer
Diluted EPS	Answer	Answer	Answer

d. Ignoring part c, how do the answers to parts a and b change if one-half of the bonds were converted on July 1, 2020?

	Net Income Available to Common Stockholders	Weighted Avg. Common Shares Outstanding	Per Share
Basic EPS	Answer	Answer	Answer
Diluted EPS	Answer	Answer	Answer