Answered

Westonci.ca offers quick and accurate answers to your questions. Join our community and get the insights you need today. Get accurate and detailed answers to your questions from a dedicated community of experts on our Q&A platform. Experience the convenience of finding accurate answers to your questions from knowledgeable experts on our platform.

On January 2, 2021, L Co. issued at face value $22,500 of 2% bonds convertible in total into 1,500 shares of L's common stock. No bonds were converted during 2021. Throughout 2021, L had 1,500 shares of common stock outstanding. L's 2021 net income was $4,500. L's income tax rate is 20%. No potential common shares other than the convertible bonds were outstanding during 2021. L's diluted earnings per share for 2021 would be: Multiple Choice $1.50. $1.62. $1.65. $3.00.

Sagot :

Answer:

L's diluted earnings per share for 2021 would be $1.62.

Explanation:

Amount of increase in net income if bonds are converted = Total value of convertible bonds * Bond rate * (100% - Tax rate) = $22,500 * 2% * (100% - 20%) = $360

Total earnings available to Equity Shareholders = Net income + Amount of increase in net income if bonds are converted = $4,500 + $360 = $4,860

Number of common shares obtainable from convertible bonds = 1,500

Total number of shares outstanding = Number of shares of common stock outstanding during 2021 + Number of common shares obtainable from convertible bonds = 1,500 + 1,500 = 3,000

Diluted earnings per share = Total earnings available to Equity Shareholders / Total number of shares outstanding = $4,860 / 3,000 = $1.62

Thanks for using our service. We aim to provide the most accurate answers for all your queries. Visit us again for more insights. We hope you found this helpful. Feel free to come back anytime for more accurate answers and updated information. We're here to help at Westonci.ca. Keep visiting for the best answers to your questions.