Question

On January 2, 2010, Perez Co. issued at par $10,000 of 6% bonds convertible in total into 1,000 shares of Perez's common stock. No bonds were converted during 2010. Throughout 2010, Perez had 1,000 shares of common stock outstanding. Perez's 2010 net income was $3,000, and its income tax rate is 30%. No potentially dilutive securities other than the convertible bonds were outstanding during 2010. Perez's diluted earnings per share for 2010 would be (rounded to the nearest penny)

a. $1.50.
b. $1.71.
c. $1.80.
d. $3.42.

Answer 1

The diluted earnings per share for 2010 would be the same as the basic earnings per share.

Step-by-step explanation:

Diluted earnings per share (EPS) is a measure of a company's profitability that takes into account the effect of potential dilution from convertible securities. To calculate diluted EPS, we need to determine the impact of converting the convertible bonds into common stock on the company's net income. Since no bonds were converted in 2010, the dilutive effect is zero.

Therefore, the diluted earnings per share for 2010 would be the same as the basic earnings per share, which is calculated by dividing the net income ($3,000) by the number of common shares outstanding (1,000).

So, the diluted earnings per share for 2010 would be $3.00.