Smith Instruments Reported $6,000,000 in Net Income for the Current

Smith Instruments reported $6,000,000 in net income for the current year.The company had $500,000 of 10% cumulative,non-convertible preferred stock outstanding all year,and issued,$5,000,000 of 6% convertible bonds issued on June 1.Each $1,000 bond is convertible into 40 shares of common stock.200,000 common shares were outstanding all year.Determine the denominator for both basic and diluted EPS when the tax rate is 40%.

A) basic EPS 200,000; diluted EPS 200,000 + (5,000 × 40) (5/12)
B) basic EPS 200,000 (7/12) ; diluted EPS 200,000 + (5,000 × 40) (7/12)
C) basic EPS 200,000; diluted EPS 200,000 + (5,000 × 40) (7/12)
D) basic EPS 200,000 (5/12) ; diluted EPS [200,000 + (5,000 × 40) ] (5/12)

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