On January 2, 2014, CBA issued at par $10,000 of 8 percent bonds convertible into 2,000 of CBA's common shares.No bonds were converted during 2014.Throughout 2014, CBA had 2,000 common shares outstanding.CBA's net income after tax was $1,000.CBA's income tax rate is 50 percent.No potentially dilutive securities other than the convertible bonds were outstanding during 2014.CBA's basic EPS and diluted EPS for 2014 would be:

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Basic EPS is calculated as net income divided by the weighted average number of common shares outstanding. Here, net income is $1,000 and there are 2,000 shares outstanding, so basic EPS = $1,000 / 2,000 = $0.50. For diluted EPS, we consider the conversion of the bonds into 2,000 additional shares, making the total shares 4,000. The interest saved on the bonds, net of tax, would be added back to net income. The annual interest on the bonds is 8% of $10,000 = $800. The tax saving on this interest is 50%, so the net interest saved is $400. The adjusted net income for diluted EPS is $1,000 + $400 = $1,400. Therefore, diluted EPS = $1,400 / 4,000 = $0.35.

On January 2, 2014, CBA Issued at Par $10,000 of 8