Essay
Sad Man Inc.had 220,000 ordinary shares outstanding in all of 2016.On January 1,2014,Sad issued at par $400,000 in 10% bonds maturing on January 1,2022.Each $1,000 bond is convertible into 9 ordinary shares.Assume that the effective interest rate is 10%.There are 5,000 outstanding cumulative preferred shares that are each entitled to an annual dividend of $0.20.Dividends were not declared or paid during 2016.Each preferred share is convertible into three ordinary shares.Sad's net income for the year ended December 31,2016 was $250,000.Its income tax rate was 35%.
Required:
a.Calculate Sad's basic EPS for 2016.
b.Are the convertible bonds dilutive or anti-dilutive in nature? The convertible preferred shares?
c.Calculate Sad's diluted EPS for 2016.
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