Question

At December 31, 2010, Kifer Company had 500,000 shares of common stock outstanding. On October 1, 2011, an additional 100,000 shares of common stock were issued. In addition, Kifer had $10,000,000 of 6% convertible bonds outstanding at December 31, 2010, which are convertible into 225,000 shares of common stock. No bonds were converted into common stock in 2011. The net income for the year ended December 31, 2011, was $3,000,000. Assuming the income tax rate was 30%, the diluted earnings per share for the year ended December 31, 2011, should be (rounded to the nearest penny)

a. $6.52.
b. $4.80.
c. $4.56.
d. $4.00.

Answer 1

To calculate the diluted earnings per share for the year ended December 31, 2011, we need to adjust for the additional shares that could potentially be issued from convertible bonds. The diluted earnings per share is approximately $4.14.

Step-by-step explanation:

To calculate the diluted earnings per share for the year ended December 31, 2011, we need to adjust for the additional shares that could potentially be issued from convertible bonds. In this case, the convertible bonds are convertible into 225,000 shares of common stock.

First, we calculate the diluted shares outstanding by adding the initial shares outstanding (500,000) to the potential additional shares from the convertible bonds (225,000). So, the diluted shares outstanding would be 725,000.

Next, we calculate the diluted earnings per share by dividing the net income ($3,000,000) by the diluted shares outstanding (725,000). The result is approximately $4.14.