An excerpt from the statement of financial position of Twilight Limited follows:

Notes and Assumptions
December 31, 2017
1. Options were granted/written in 2016 that give the holder the right to purchase 100,000 common shares at $8 per share. The average market price of the company's common shares during 2017 was $14 per share. The options expire in 2025 and no options were exercised in 2017.
2. The 4% bonds were issued in 2016 at face value. The 6% bonds were issued on June 1, 2017 at face value. Each bond has a face value of $1,000 and is convertible into 100 common shares.
3. The convertible preferred shares were issued at the beginning of 2017. Each share of preferred is convertible into one common share.
4. The average income tax rate is 25%.
5. The common shares were outstanding during the entire year.
6. Preferred dividends were not declared in 2017.
7. Net income was $2.5 million in 2017.
8. No bonds or preferred shares were converted during 2017.
Instructions
(a) Calculate basic earnings per share for 2017.
(b) Calculate diluted earnings per share for 2017. For simplicity, ignore the requirement to record the debt and equity components of the bonds separately.
(c) From the perspective of a common shareholder, provide support for the treatment of the preferred dividends in calculating Twilight Limited's basic and diluted earnings per share.
(d) Discuss how a potential shareholder's investment decision may be affected if diluted earnings per share was not reported.

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TWILIGHT LIMITED Selected Statement of Financial Position Information At December 31, 2017 Long-term debt Notes payable, 10% 4% convertible bonds payable 6% convertible bonds payable $5,000,000 2,000,000 3,000,000 $10,000,000 Total long-term debt Shareholders' equity $0.68 cumulative, no par value, convertible preferred shares 3,000,000 (unlimited number of shares authorized, 600,000 shares issued and outstanding) Common shares, no par value (8,000,000 shares authorized 25,000,000 3,000,000 shares issued and outstanding) Contributed surplus Retained earnings 200,000 7,000,000 $35,200,000 Total shareholders' equity