Question 2 (7 marks):
Snarkle Corp. has the following selected financial information for its fiscal year ended December
31, 2025:
Long-term Debt
12% convertible bonds payable 8,000,000
14% bonds payable 9,000,000
Shareholders' Equity
Preferred stock, 8% cumulative and convertible, $50 par value,
100,000 shares authorized, 40,000 issued and 2,000,000
outstanding
Common stock, $1 par, 10,000,000 shares authorized, 2,000,000
2,000,000 shares issued and outstanding 2,000,000
Additional paid-in capital, common stock 8,000,000
Retained earnings 4,000,000
* Each $1,000 face value convertible bond is convertible into 120 shares of common stock.
The bonds may be converted any time after December 31, 2024, although none were
converted during the year.
* Each preferred share is convertible into 30 shares of common stock.
* The 40,000 shares of preferred stock were outstanding for the entire year.
* Net income after tax for 2025 was $1,660,000, and the tax rate for the firm was 25%. No
dividends were declared or paid during the year.
* 100,000 warrants for the purchase of common stock were outstanding for the entire year
of 2025. Each warrant can be used to purchase one newly issued share of common stock
for $5. The stock price of Snarkle had an average value of $25 over the year, and closed
at $20 on December 31.
* The number of common shares outstanding at the start of the year was 750,000. 250,000
shares were issued on May 31, 2025 for total proceeds of $3,000,000. On September 30,
2025, a 2-for-1 stock split was issued. All conversion rates above have been updated to
reflect the split.
* Round all EPS calculations to the closest 3 decimal places, and show all your work!
Calculate Diluted earnings-per-share for Snarkle for 2025.
