Rockland Corporation earned net income of $300,000 in 2014 and had 100,000 shares of common stock...

Question:

Rockland Corporation earned net income of $300,000 in 2014 and had 100,000 shares of common stock outstanding throughout the year. Also outstanding all year was $800,000 of 10% bonds, which are convertible into 16,000 shares of common. Rockland's tax rate is 40 percent. Compute Rockland's 2014 diluted earnings per share.

Diluted Earning per Share

Diluted Earning per Share is used to calculate earning per share with the assumption that rights for all convertible securities to convert to common stock will be exercised. Convertible securities can be convertible preferred stock, convertible bonds, employee stock options, etc.

Answer and Explanation:

Diluted EPS = {eq}\frac{Net Income}{Average Outstanding Shares + Diluted Shares} {/eq}

Here,

Net Income = $300,000

Avg Shares = 100,000

Diluted Shares = 16,000

DIluted EPS = {eq}\frac{300000}{100000 + 16000} {/eq}

= $2.59 per share


Learn more about this topic:

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How to Calculate Earnings Per Share: Definition & Formula

from Introduction to Business: Homework Help Resource

Chapter 24 / Lesson 14
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