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During the current year, South Corporation had 16.0 million shares of common stock outstanding. Four thousand 15% convertible bonds, each with $1000 face value, were issued at face amount at the beginning of the year. South reported net income of $4.0 million for the year. Each bond is convertible into 10 shares of common stock. The tax rate is 25%. What is diluted EPS (rounded)

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Answer:

Diluted EPS=$0.187 per share

Explanation:

Diluted EPS = Income available to ordinary shareholders / Total number of  shares available after conversion

Total number of converted shares = 4,000× 10= 40,000 units

Total number o shares after conversion = 40,000+ 16,000,000= 16,040,000 units

                                                                     $

Net income =                                    4,000,000

Tax rate  (25% × 4,000,000)            (1,000000 )

Net income                                        3,000,000

Diluted EPS =           Net income /Number of shares

                    =    3,000,000/16,040,000=

                  =$0.187 per share

Diluted EPS=$0.187 per share

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