Question & Answer: On January 1, 2017, Cullumber Company issued 10-year, $2,160,000 face value, 6% bonds, at par. Each $1,00…..

Exercise 16-25

On January 1, 2017, Cullumber Company issued 10-year, $2,160,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 14 shares of Cullumber common stock. Cullumber’s net income in 2017 was $290,000, and its tax rate was 40%. The company had 107,000 shares of common stock outstanding throughout 2017. None of the bonds were converted in 2017.

(a) Compute diluted earnings per share for 2017. (Round answer to 2 decimal places, e.g. $2.55.)

Diluted earnings per share

$

(b) Compute diluted earnings per share for 2017, assuming the same facts as above, except that $1,070,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 5 shares of Cullumber common stock. (Round answer to 2 decimal places, e.g. $2.55.)

Diluted earnings per share

$