On June 1, 2018, Gustav Corp. and Gabby Limited merged to form Fallon Inc. A total of 800,000 shares were issued to complete the merger. The new corporation uses the calendar year as its fiscal year. 

On April 1, 2020, the company issued an additional 400,000 shares for cash. All 1.2 million shares were outstanding on December 31, 2020. Fallon Inc. also issued $600,000 of 20-year, 8% convertible bonds at par on July 1, 2020. Each $1,000 bond converts to 40 common shares at the annual interest date. None of the bonds have been converted to date. If the bonds had been issued without the conversion feature, the annual interest rate would have been 10%. 

Fallon Inc. is preparing its annual financial statements for the fiscal year ended December 31, 2020. The financial statements will show earnings per share figures based on a reported after-tax net income of $1,540,000. (The tax rate is 30%.) 

Instructions 

a. Rounding to the nearest share, determine for 2020 the number of shares to be used in calculating: 

1. Basic earnings per share 

2. Diluted earnings per share 

b. Rounding to the nearest cent, determine for 2020 the earnings figures to be used in calculating: 

1. Basic earnings per share 

2. Diluted earnings per share. Use a financial calculator or Excel functions in arriving at the calculations for the bonds.