Question
On January 1, 2020, Sunny Company issued 10-year, $1,000,000 face value, 6% bonds, at par. Each $1,000 bonds is convertible into 15 shares of Sunny
On January 1, 2020, Sunny Company issued 10-year, $1,000,000 face value, 6% bonds, at par.
Each $1,000 bonds is convertible into 15 shares of Sunny common stock.
Sunnys net income in 2020 was $200,000, and its tax rate was 40%.
The company had 100,000 shares of common stock outstanding throughout 2020.
None of the bonds were converted in 2020.
Bunny Companys net income for 2020 is $100,000. The only potentially dilutive securities outstanding were 10,000 options issued during 2019, each exercisable for one share at $10. None has been exercised, and 100,000 shares of common were outstanding during 2020. The average market price of the stock during 2020 was $20.
Instructions:
(a)Compute basic earnings per share for 2020 in each company.
(b)Compute diluted earnings per share for 2020 in each company.
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