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During 2016, Sanchez, Inc. had the following convertible securities outstanding:
- $220,000 of 10%, $100 par, cumulative preferred stock. Each share is convertible into 5 shares of common stock.
- $200,000 of 9.5% convertible bonds. Each $1,000 bond is convertible into 45 shares of common stock.
- $100,000 of 8% convertible bonds. Each $1,000 bond is convertible into 32 shares of common stock.
- $150,000 of 11%, $100 par, cumulative preferred stock. Each share is convertible into 5 shares of common stock.
Sanchez, Inc. has an income tax rate of 40%.
Required:
- Prepare a schedule that lists the impact of the assumed conversion of each convertible security on diluted earnings per share.
- Prepare a ranking of the order in which the securities would be included in the diluted earnings per share calculations.
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