E16-25B (EPS with Convertible Bonds and Preferred Stock)On January 1, 2014, Yellow Car Company issued 15-year, $50,000,000 face value, 4% bonds, at par. Each $1,000 bond is convertible into 20 shares of Yellow Car common stock. None of the bonds were conv

E16-25B (EPS with Convertible Bonds and Preferred Stock)On January 1, 2014, Yellow Car Company issued 15-year, $50,000,000 face value, 4% bonds, at par. Each $1,000 bond is convertible into 20 shares of Yellow Car common stock. None of the bonds were converted in 2014. Yellow Car’s net income in 2014 was $8,680,000, and its tax rate was 30%. The company had 2,650,000 shares of common stock issued and outstanding throughout 2014. 

Instructions

(a) Compute diluted earnings per share for 2014.

(b) Compute diluted earnings per share for 2014, assuming the same facts as above, except that $50,000,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 2 shares of Yellow Car common stock.