Chapter 20, Problem 20.7E

Computing Basic and Diluted EPS, Convertible Bonds Converted during the Year. Topher Company began the current year with 1,600,000 common shares outstanding. It also reported $800,000 par value, 2% convertible bonds outstanding all year. The bonds were issued at par and can be converted to 800,000 shares of common stock. Topher made interest payments at the end of each quarter. The company is subject to a 40% effective tax rate and reported net income of $950,000 for the current year.

Required

1. a. What are basic and diluted EPS for Topher Company?
2. b. Assume that the bonds were converted on October 1. What are basic and diluted EPS for Topher Company?