Shipping Corporation had net income for the year of P500,000 and a weighted
average number of ordinary shares outstanding during the period of 200,000
shares. The company has a convertible bond issue outstanding. The bonds were
issued four years ago at par (P3,000,000), carry a 7% interest rate, and are
convertible into 50,000 shares. The company has a 40% tax rate. Diluted
earnings per share are Select one: a. P2.50 b. P2.23 c. P2.58 d. P1.65
Answer & Explanation
To calculate the diluted earnings per share (EPS), we need to consider the
impact of the convertible bonds on both net income and the number of shares.
Here's a step-by-step explanation:
1. Calculate Basic EPS: [ \text{Basic EPS} = \frac{\text{Net Income}}{\
text{Weighted Average Shares Outstanding}} = \frac{P500,000}
{200,000} = P2.50 ]
2. Calculate Interest on Convertible Bonds:
o Total bond value = P3,000,000
average number of ordinary shares outstanding during the period of 200,000
shares. The company has a convertible bond issue outstanding. The bonds were
issued four years ago at par (P3,000,000), carry a 7% interest rate, and are
convertible into 50,000 shares. The company has a 40% tax rate. Diluted
earnings per share are Select one: a. P2.50 b. P2.23 c. P2.58 d. P1.65
Answer & Explanation
To calculate the diluted earnings per share (EPS), we need to consider the
impact of the convertible bonds on both net income and the number of shares.
Here's a step-by-step explanation:
1. Calculate Basic EPS: [ \text{Basic EPS} = \frac{\text{Net Income}}{\
text{Weighted Average Shares Outstanding}} = \frac{P500,000}
{200,000} = P2.50 ]
2. Calculate Interest on Convertible Bonds:
o Total bond value = P3,000,000
