Earnings for a firm for the current year are $20,000 and the weighted average number of common shares before considering potentially dilutive securities is 18,000.The firm has no preferred shares but has 100, 8%, $1,000 convertible bonds which were issued at face value many years ago.Each bond is convertible into 50 common shares.The tax rate is 40%.Compute EPS to be reported for this firm.(Rounded to the nearest cent)

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Basic EPS is calculated as (Net Income - Preferred Dividends) / Weighted Average Shares Outstanding. Since there are no preferred shares, Basic EPS = $20,000 / 18,000 = $1.11. For diluted EPS, first calculate the impact of converting the bonds: 100 bonds * 50 shares = 5,000 additional shares. Interest saved on conversion, net of tax = 100 bonds * $1,000 * 8% * (1 - 0.40) = $4,800. Adjusted earnings = $20,000 + $4,800 = $24,800. Diluted EPS = $24,800 / (18,000 + 5,000) = $1.08.

Earnings for a Firm for the Current Year Are $20,000