Reporting Earnings Per Share Memphis Metal Products (MMP) was started in 1994 with the sale of 200,000 shares of $10-par common stock at $12 per share. MMP has grown at a rapid rate and has needed additional funding. The following securities were issued:

1. On January 2, 1997, MMP issued 20,000 shares of 8 percent convertible preferred stock with a par value of $50.

2. On July 1, 2000, MMP sold an additional 50,000 shares of common stock at $32 per share.

MMP reported net income of $550,000 for 2000 and paid a common dividend of $1.00 per share in December. MMP has a 40 percent income tax rate.

fab} . Compute the amount to be reported as basic earnings per share by MMP for 2000.

. In very general terms, how would the outstanding convertible preferred stock affect the reporting of earnings per share?

. What is the likelihood of the preferred stock being voluntarily converted into common stock by the preferred shareholders? Explain.

. Why is it useful to investors to have both the basic and diluted earnings per share amounts provided? In what way is basic earnings per share useful in evaluating MMP? In what way is diluted earnings per share useful?