Question - On January 1, 2017, Stellar Company issued 10-year, $2,060,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 16 shares of Stellar common stock. Stellar's net income in 2017 was $294,000, and its tax rate was 40%. The company had 101,000 shares of common stock outstanding throughout 2017. None of the bonds were converted in 2017.
(a) Compute diluted earnings per share for 2017.
(b) Compute diluted earnings per share for 2017, assuming the same facts as above, except that $1,010,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 5 shares of Stellar common stock.