E16.25 (LO 1, 5) (EPS with Convertible Bonds and Preference Shares) The Ottey Corporation issued 10-year, $4,000,000 par, 7% callable convertible subordinated debentures on January 2, 2022. The bonds have a par value of $1,000, with interest payable annually. The interest expense recorded on the liability component of the convertible bond for 2022 was $320,000. The current conversion ratio is 14:1, and in 2 years it will increase to 18:1. At the date of issue, the bonds were sold at 98. Ottey's effective tax was 35%. Net income in 2022 was $7.500,000, and the company had 2,000,000 shares outstanding during the entire year. Instructions a. Prepare a schedule to compute both basic and diluted eanings per share. b. Discuss how the schedule would differ if the security was convertible preference shares.

E16.25 (LO 1, 5) (EPS with Convertible Bonds and Preference Shares) The Ottey Corporation issued 10-year, $4,000,000 par, 7% callable convertible subordinated debentures on January 2, 2022. The bonds have a par value of $1,000, with interest payable annually. The interest expense recorded on the liability component of the convertible bond for 2022 was $320,000. The current conversion ratio is 14:1, and in 2 years it will increase to 18:1. At the date of issue, the bonds were sold at 98. Ottey's effective tax was 35%. Net income in 2022 was $7.500,000, and the company had 2,000,000 shares outstanding during the entire year. Instructions a. Prepare a schedule to compute both basic and diluted eanings per share. b. Discuss how the schedule would differ if the security was convertible preference shares.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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