Isabelle Leclerc is the controller at Camden Pharmaceutical Industries, a public company. She is currently preparing the

Question:

Isabelle Leclerc is the controller at Camden Pharmaceutical Industries, a public company. She is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for Camden's external financial statements. The following is selected financial information for the fiscal year ended June 30, 2017:

The following transactions have occurred at Camden:
1. Options were granted by the company in 2015 to purchase 100,000 shares at $15 per share. Although no options were exercised during 2017, the average price per common share during fiscal year 2017 was $20.
2. Each bond was issued at face value. The 7% convertible debenture will convert into common shares at 50 shares per $1,000 bond. It is exercisable after five years and was issued in 2016. Ignore any requirement to record the bonds' debt and equity components separately.
3. The $4.25 preferred shares were issued in 2015.
4. There are no preferred dividends in arrears, and preferred dividends were not declared in fiscal year 2017.
5. The 1 million common shares were outstanding for the entire 2017 fiscal year.
6. Net income for fiscal year 2017 was $1.5 million, and the average income tax rate was 30%.
Instructions
(a) For the fiscal year ended June 30, 2017, calculate the following for Camden Pharmaceutical Industries:
1. Basic earnings per share
2. Diluted earnings per share
(b) Explain how premiums and discounts on outstanding convertible bonds affect the calculation of diluted earnings per share.
(c) From the perspective of a common shareholder, provide support for the treatment of the preferred dividends in calculating Camden Pharmaceutical Industries' basic and diluted earnings per share.