During the current year, High Corporation had 3 million shares of common stock outstanding. Five thousand $1,000, 6% convertible bonds were issued at face amount at the beginning of the year. High reported income before tax of $4 million and net income of $2.4 million for the year. Each bond is convertible into 10 shares of common. What is diluted EPS (rounded)?
A) $0.85.
B) $0.86.
C) $0.80.
D) $0.79.

Question

Quizplus · Accepted Answer

$\frac{\$ 2,400,000+[\$ 300,000 \times(1-40 \%)]}{3,000,000+(5,000 \times 10)}=\frac{\$ 2,580,000}{3,050,000}=\$ 0.85$ *($4 - 2.40) ÷ $4 = 40%
Without adjusting for convertible bonds:
As the bonds are antidilutive and therefore would not be included in the calculation of diluted EPS. $\frac{\$ 2,400,000}{3,000,000}=\$ 0.80$

During the Current Year, High Corporation Had 3 Million Shares