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accounting exams









General Accounting Discussions: EPS with Convertible Bonds and Preferred Shares

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    Question reads:
    The Shengru corporation issued 10-year $5 million par, 7% callable convertible subordinated debentures on January 2, 2005. The debentures have a face vlaue of $1,000 with interest payable anually. The current conversion ratio is 14:1 and in two 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. Shengru's effective tgax was 35%. Net income in 2005 was $9.5 mllion, and the company had 2 million shares outstanding during the netire year. Ignore the requirement to record the debentures debt and equity components separately.

    a) Prepare a schedule to calculate both basic and diluted earnings per share for the year ended Dec 31, 2005.
    b) discuss how the schedule would iffer if the security were convertible preferred shares.

    HELP!!!!!!!!!!!!!!!!!!!

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