Because the bonds are convertible, the capital structure is complex. You have to report primary earnings per share and fully diluted EPS. The latter is based on the assumption that the bonds have been converted into common stock, but you would report fully diluted EPS only if the result is less than primary EPS.

At December 31, 2011, the books of Yorke Corporation include the following balances:

Long-term liabilities:

Bonds payable, 8%, each $1,000 bond is convertible into 50 shares of common stock; bonds sold at par and were issued

November 3, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . $ 500,000

Stockholders’ equity:

Preferred stock, 7%, $50 par, cumulative, nonconvertible,

10,000 shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 500,000

Paid-in capital in excess of par, preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000

Common stock, $10 par, authorized 300,000 shares;

199,500 shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,995,000

Paid-in capital in excess of par, common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 519,000