E16-24B (EPS with Convertible Bonds and Preferred Stock)Richie Candy Corporation issued 20-year, $10,000,000 face value, 9% convertible debentures on January 1, 2011. The bonds have a par value of $1,000, with interest payable semiannually. The initial co

E16-24B (EPS with Convertible Bonds and Preferred Stock)Richie Candy Corporation issued 20-year, $10,000,000 face value, 9% convertible debentures on January 1, 2011. The bonds have a par value of $1,000, with interest payable semiannually. The initial conversion ratio is 10:1, and in 3 years it will increase to 12:1. At the date of issue, the bonds were sold at 105. Bond premium is amortized on a straight-line basis. Richie Candy’s effective tax was 40%. Net income in 2014 was $26,860,000, and the company had 12,800,000 common shares issued and outstanding during the entire year.

Instructions

(a) Prepare a schedule to compute both basic and diluted earnings per share.

(b) Discuss how the schedule would differ if the security was convertible preferred stock