During 2016, Sanders, Inc. had the following convertible securities outstanding:
A. $220,000 of 10%, $100 par, convertible preferred stock. Each share is convertible into 5 shares of common stock.
B. $200,000 of 9.5% convertible bonds. Each $1,000 bond is convertible into 45 shares of common stock.
C. $100,000 of 8% convertible bonds. Each $1,000 bond is convertible into 32 shares of common stock.
D. $150,000 of 11%, $100 par, convertible preferred stock. Each share is convertible into 5 shares of common stock.
Sanders, Inc. has an income tax rate of 40%.
Required:
a. Prepare a schedule that lists the impact of the assumed conversion of each convertible security on diluted earnings per share.
b. Prepare a ranking of the order in which the securities would be included in the diluted earnings per share calculations.

Question

Quizplus · Accepted Answer

The Answer of During 2016, Sanders, Inc. had the following convertible securities outstanding:
A. $220,000 of 10%, $100 par, convertible preferred stock. Each share is convertible into 5 shares of common stock.
B. $200,000 of 9.5% convertible bonds. Each $1,000 bond is convertible into 45 shares of common stock.
C. $100,000 of 8% convertible bonds. Each $1,000 bond is convertible into 32 shares of common stock.
D. $150,000 of 11%, $100 par, convertible preferred stock. Each share is convertible into 5 shares of common stock.
Sanders, Inc. has an income tax rate of 40%.
Required:
a. Prepare a schedule that lists the impact of the assumed conversion of each convertible security on diluted earnings per share.
b. Prepare a ranking of the order in which the securities would be included in the diluted earnings per share calculations.