1.

Colorado Company had 100,000 shares of common stock outstanding on January 1, 2021.

On September 30, 2021, Colorado sold 40,000 shares of common stock for cash.

Colorado also had 6,000 shares of convertible preferred stock outstanding throughout 2021. The preferred stock is $100 par, 6%, and is convertible into 3 shares of common for each share of preferred.

Colorado also had 420, 8%, convertible bonds outstanding throughout 2021. Each $1,000 bond is convertible into 30 shares of common stock. The bonds sold originally at face value.

Reported net income for 2021 was $270,000 with a 40% tax rate.

Common shareholders received $1.20 per share dividends after preferred dividends were paid in 2021. Required: Compute basic and diluted earnings per share for 2021.

2. Under its executive stock option plan, Bear Corporation granted options on January 1, 2021, that permit executives to purchase 28.5 million of the company's $1 par common shares within the next eight years, but not before December 31, 2023 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures were anticipated; however, unexpected turnover during 2022 caused the forfeiture of 5% of the stock options. Ignoring taxes, what is the effect on earnings in 2023?