1. Company is authorized to issue 8,000,000 shares of $10 par value common stock. As of Dec 31, 2011, 2,000,000 shares had been issued and were outstanding. 2. The per share market prices of the common stock on selected dates were as follows: Price per share July 1, 2010 $20.00 January 1, 2011 21.00 April 1, 2011 25.00 July 1, 2011 11.00 August 1, 2011 10.50 Nov 1, 2011 9.00 Dec 1, 2011 10.00 3. Total of 700,000 shares of an authorized 1,200,000 shares of convertible preferred stock had been issued on July 1, 2010. Stock was issued at its par value of $25, and has a cumulative dividend of $3 per share. Stock is convertible into common stock at the rate of one share of convertible preferred for one share of common. The rate of conversion is to be automatically adjusted for stock splits and stock dividends. Dividends are paid quarterly on Sept 30, Dec 31, Mar 31, and June 30. 4. Company is subject to 40% income tax rate. 5. After-tax net income for year ended Dec 31, 2011 was $11,550,000. Following activities took place during 2011 1. Jan 1 5% common stock dividend was issued. Dividend declared on Dec 1, 2010 to all stockholders of record on Dec 29, 2010. 2. April 1 Total of 400,000 shares of the $3 convertible stock was converted into common stock. Company issued new common stock and retired preferred stock. This was the only conversion of the preferred stock during 2011. 3. July 1 a 2-for-1 split of the common stock became effective on this date. BOD authorized the split on June 1. 4. August 1 Total of 300,000 shares of common stock were issued to acquire a factory building. 5. Nov 1 Total of 24,000 shares of common stock purchased on the open market at $9 per share. Shares were to be held as treasury stock and were still in the treasury as of Dec 31, 2011. 6. Common stock cash dividends cash dividends to common stockholders were declared and paid as follows: April 15 - $0.30 per share Oct 15 - $0.20 per share 7. Preferred stock cash dividends cash dividends to preferred stockholders were declared and paid as scheduled. Instructions A Determine number of shares used to compute basic earnings per share for the year ended Dec 31, 2010. B Determine the number of shares used to compute diluted earnings per share for the year ended Dec 31, 2010. C Compute the adjusted net income to be used as the numerator in the basic earnings per share calculation for the year ended Dec 31, 2010