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Question is above the solution. Can someone please explain how you work out the numbers in the solution. Thank you epsextrabondconv Bond facts Face amount

Question is above the solution. Can someone please explain how you work out the numbers in the solution.

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epsextrabondconv
Bond facts
Face amount 1,500,000
Face rate 12%
1/1 and 7/1 interest payments
Proceeds from issuance 1,466,000
Discount amortized using straight line
Issue date 7/1/04
10 year term
Each $1,000 bond convertible into 8 shares of $100 par common
On 8/1/2005 $150,000 bonds were converted into common. Accrued interest on the converted
bonds was paid at conversion
Additional facts needed are as follows:
Net income for 2005 6,000,000
Tax rate 40%
Common stock outstanding at 1/1/05 500,000
There were no stock transactions other than the bond conversion
Calculate 2005 basic and diluted earnings per share

epsextrabondconv
Bond facts
Face amount 1,500,000
Face rate 12%
1/1 and 7/1 interest payments
Proceeds from issuance 1,466,000 this reflects a $34,000 discount
Discount amortized using straight line
Issue date 7/1/04
10 year term
Each $1,000 bond convertible into 8 shares of $100 par common
On 8/1/2005 $150,000 bonds were converted into common. Accrued interest on the converted
bonds was paid at conversion
Additional facts needed are as follows:
Net income for 2005 6,000,000 this reflects the effect of the actual conversion of $150,000 bonds on net income
Tax rate 40%
Common stock outstanding at 1/1/05 500,000
There were no stock transactions other than the bond conversion
The basic calculation is as follows:
6,000,000 = 6,000,000 = 11.99
500,000 + (150,000/1,000 * 8 shares per bond * 5/12) 500,500
The diluted calculation is as follows:
The numerator must take into account the interest that would not be incurred if the bonds were converted. Discount amortization is part of interest expense
and thus must also be taken into consideration for the appropriate periods. Interest expense and thus discount would be removed for 7/12 of the year
for the $150,000 of bonds that were converted and would be removed for the entire year for the bonds that were not actually converted but are assumed
converted in the diluted calculation
6,000,000 + ((1,350,000 *.12*.60) + (150,000 *.12*.60*7/12) + (34,000/10*1350/1500*.6) + (34,000/10* 150/1500*7/12*.60)) = 6,105,455 = 11.92
500,500 + (1,350,000/1000*8) + (150,000/1,000 * 8 * 7/12) 512,000
The denominator assumes conversion of the 150,000 bonds as of 1/1 rather than 8/1 and conversion of the remaining 1,350,000 at 1/1

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