Accounting 327 In-class activity, April 7, 2020 Diluted Earnings Per Share Grassland Company had 200,000 shares of common stock outstanding on January 1, 2018. On September 30, 2018, Grassland sold 80,000 shares of common stock for cash. Grassland also had 40,000 shares of $10 par, 10%, noncumulative, convertible preferred stock outstanding throughout 2018. Each share is convertible into one share of common stock. Grassland also had $500,000 of 8% bonds outstanding throughout 2018. Each $1,000 bond is convertible into 30 shares of common stock. The bonds sold originally at face value. Grassland also had stock options outstanding that were completely vested as of December 31, 2017 and allowed for the purchase of 10,000 shares of Grassland common stock at an exercise price of $40 per share. The average market price of these shares was $50 during 2018. The Reported net income for 2018 was $400,000 with a 21% tax rate. Common shareholders received $1 per share dividends after preferred dividends were paid in 2018. Required: For each item you should present your work in good form. You can use Microsoft Word or a similar program to prepare your response. 1. Compute basic Earnings Per Share (EPS). 2. Follow the steps outlined below to compute diluted EPS and to consider several other issues associated with arriving at diluted EPS. a. Describe why the stock options should be included in the computation of diluted EPS. The description at the bottom of p. 1116 of the text is helpful in responding to this item. b. Following the example on p. 1118, compute the earnings per incremental share of: i. Convertible preferred stock. ii. Convertible bonds. c. Based on the above, discuss whether either or both of the convertible securities referred to above should be included in the computation of diluted EPS. d. Compute diluted EPS