1. In 2018, Hammer Co. issued, at par, $850,000 of 8% convertible bonds. Each of the 850 $1,000 bonds is convertible into 30 shares of $1 par value common stock. As of December 31, 2020, none of the bonds had been converted. The company had no preferred stock or other convertible securities.

Hammer had 150,000 shares of common stock outstanding during all of 2020. Hammers 2020 net income was $575,000 and the income tax rate was 25%. Common stock dividends of $2 per share were declared and paid during 2020.

Instructions

1. Compute basic and diluted earnings per share for 2020.
2. Assume that 500 of the bonds were converted to common stock on March 1, 2021. Record the journal entry for the conversion of the bonds.