Chapter 10, Problem 10.15E

Effect of Convertible Bonds on Earnings per Share
Poppy Corporation owns 60 percent of Seed Company’s common shares. Balance sheet data for the companies on December 31, 20X2, are as follows:

The bonds of Poppy Corporal ion and Seed Company pay annual interest of 8 percent and 10 percent, respectively. Poppy’s bonds are not convertible. Seeds bonds can be converted into 10,000 shares of its company stock any time after January 1, 20X1. An income tax rate of 40 percent is applicable to both companies. Seed reports net income of $30,000 for 20X2 and pays dividend of $15,000. Poppy reports income from its separate operations of $45,000 and pays dividends of $25,000.

Required
Compute basic and diluted EPS for the consolidated entity for 20X2.