During 2014, 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

During 2014, 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.

Quizplus · Accepted Answer

The Answer of During 2014, 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.