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. (Round answer to 2 decimal places, e. g. $3.55.)

Diluted eps = $3 per share.

Explanation:

Outstanding shares = 100000 shares

Net income = $ 300000

Bond face value = $800000

Convertible in to shares = 16000 shares

tax rate  = 40%.

we know that: diluted earning per share=( net income + after tax interest on convertible debt) / weighted average number of shares outstanding + diluted shares.

- After tax interest on convertible bond= 800000* 10% = $80000 interest.

       $80000 * tax rate = 80000 * 40%= 32000.

After tax interest on convertible bond= 80000-32000= $48000.

             =  (300000 +48000)

                / (100000 + 16000)

            = 348000/116000

             = #3 per share.

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