Exercise 16-25

On January 1, 2020, Teal Company issued 10-year, $1,890,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 16 shares of Teal common stock. Teals net income in 2020 was $470,000, and its tax rate was 20%. The company had 94,000 shares of common stock outstanding throughout 2020. None of the bonds were converted in 2020. (a) Compute diluted earnings per share for 2020. (Round answer to 2 decimal places, e.g. $2.55.)

Diluted earnings per share

$enter diluted earnings per share rounded to 2 decimal places

(b) Compute diluted earnings per share for 2020, assuming the same facts as above, except that $940,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 5 shares of Teal common stock. (Round answer to 2 decimal places, e.g. $2.55.)

Diluted earnings per share