Convertible Securities and Earnings per Share
Response to the following problem:
Walker Company has 15,000 shares of common stock outstanding during all of 2010. It also has two convertible securities outstanding at the end of 2010. These are:
1. Convertible preferred stock: 1,000 shares of 9%, $100 par, preferred stock were issued in 2009 for $140 per share. Each share of preferred stock is convertible into 3.5 shares of common stock. The current dividends have been paid. To date, no preferred stock has been converted.
2. Convertible bonds: Bonds with a face value of $100,000 and an interest rate of 10% were issued at par on July 6, 2010. Each $1,000 bond is convertible into 35 shares of common stock. To date, no bonds have been converted.
The company earned net income of $54,000 during 2010. Its income tax rate is 30%.
Required:
Compute the 2010 diluted earnings per share. What earnings per share amount(s) would Walker report on its 2010 income statement?