The Simon Corporation issued 10-year, $5,000,000 par, 7% callable convertible subordinated debentures on January 2, 2020. The bonds have a par value of $1,000, with interest payable annually. 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. Bond discount is amortized on a straight-line basis. Simon's effective tax was 20%. Net income in 2020 was $9,500,000, and the company had 2,000,000 shares outstanding during the entire year. Instructions a.   Prepare a schedule to compute both basic and diluted earnings per share. b.   Discuss how the schedule would differ if the security was convertible preferred stock.

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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The Simon Corporation issued 10-year, $5,000,000 par, 7% callable convertible subordinated debentures on January 2, 2020. The bonds have a par value of $1,000, with interest payable annually. 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. Bond discount is amortized on a straight-line basis. Simon's effective tax was 20%. Net income in 2020 was $9,500,000, and the company had 2,000,000 shares outstanding during the entire year.

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a.   Prepare a schedule to compute both basic and diluted earnings per share.

b.   Discuss how the schedule would differ if the security was convertible preferred stock.

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