During 2020, Madrid Ltd. had 200,000 common shares, 30,000 non-cumulative convertible preferred shares, and $ 1,500,000 10% convertible bonds outstanding. The preferred shares are convertible into 40,000 common shares. During 2020, Madrid paid dividends of $ 1.20 per share to the common shares and $ 2.00 per share to the preferred shares. Each $ 1,000 bond is convertible into 45 common shares. The net income for 2020 was $ 900,000 and the income tax rate was 30%. Diluted earnings per share for 2020 is

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To calculate the diluted earnings per share (EPS), we need to adjust the net income and the number of shares for the effects of all potential dilutive securities. 1. **Net Income Adjustment**: Convertible bonds interest needs to be added back to net income, net of tax, because converting the bonds into shares would eliminate the interest expense. The annual interest on the bonds is $1,500,000 * 10% = $150,000. After tax, the amount to add back is $150,000 * (1 - 0.30) = $105,000.Adjusted Net Income = $900,000 + $105,000 = $1,005,000.2. **Share Adjustment**: - For the preferred shares, 30,000 shares are convertible into 40,000 common shares. - For the bonds, $1,500,000 / $1,000 = 1,500 bonds, convertible into 1,500 * 45 = 67,500 common shares.Total adjusted shares = 200,000 (original common shares) + 40,000 (from preferred shares) + 67,500 (from bonds) = 307,500 shares.3. **Diluted EPS Calculation**: Diluted EPS = Adjusted Net Income / Adjusted Shares = $1,005,000 / 307,500 = $3.27.Therefore, the correct answer is C) $3.27.