During 2010, Pesty Co.had net income of $200, 000 including after-tax interest expense of $30, 000 on convertible bonds.The $300, 000 face value of convertible bonds can be converted into common stock at the rate of 300 shares per $1, 000 bond.Prior to the conversion, there were 400, 000 shares of common stock outstanding.The fully diluted earnings per share is

Question

Quizplus · Accepted Answer

To calculate fully diluted earnings per share, we need to add the potential shares that could be created from the conversion of the convertible bonds. In this case, the convertible bonds can be converted into 300 shares per $1,000 bond, so the total number of potential shares that could be created is:

($300,000 / $1,000) x 300 = 90,000 shares

To calculate fully diluted earnings per share, we divide the net income ($200,000) by the total number of shares outstanding after taking into account the potential shares created from the conversion of the convertible bonds:

400,000 + 90,000 = 490,000 shares

$200,000 / 490,000 shares = $0.408 per share

Therefore, the fully diluted earnings per share is $0.469 per share.