2. Basic and diluted EPS.

Assume that the following data relative to Kane Company for 2010 is available:

Net Income $2,100,000

Transactions in Common Shares Change Cumulative

Jan. 1, 2010, Beginning number 700,000

Mar. 1, 2010, Purchase of treasury shares (60,000) 640,000

June 1, 2010, Stock split 2-1 640,000 1,280,000

Nov. 1, 2010, Issuance of shares 120,000 1,400,000

8% Cumulative Convertible Preferred Stock

Sold at par, convertible into 200,000 shares of common

(adjusted for split). $1,000,000

Stock Options

Exercisable at the option price of $25 per share. Average

market price in 2010, $30 (market price and option price

adjusted for split). 60,000 shares

Instructions

(a) Compute the basic earnings per share for 2010. (Round to the nearest penny.) (Check your answer: EPS = $1.53)

(b) Compute the diluted earnings per share for 2010. (Round to the nearest penny.) (Check your answer: EPS = $1.37)