Question

On January 2, 2021, Crane Company issued at par $9300 of 7% bonds convertible in total into 1000 shares of Crane's common stock. No bonds were converted during 2021. Throughout 2021, Crane had 1000 shares of common stock outstanding. Crane's 2021 net income was $4100, and its income tax rate is 25%. No potentially dilutive securities other than the convertible bonds were outstanding during 2021.


Crane's diluted earnings per share for 2021 would be _________ (rounded to the nearest penny)

Answer 1

Answer:

$2.29 per share

Explanation:

According to the scenario, computation of the given data are as follow:-

We can calculate the diluted earnings per share by using following formula:-

If Bonds Are Converted Net of Tax, Saving in Interest = ( Issued at Par × Rate of Bond) × (1 - Income Tax Rate)

= ( $9,300 × 0.07) × (1 - 0.25)

= $651 × 0.75 = $488.25

If Bonds Converted, Total Earnings = Net Income + Saving in interest

= $4,100 + $488.25

= $4,588.25

Total of outstanding share = 1,000 + 1,000 = 2,000

Diluted Earnings Per Share For 2021 = Total Earnings ÷ Total of Outstanding Share

= $4,588.25 ÷ 2,000

= $2.29 per share