Basic and Diluted Earnings per Share Calculation.

In all three parts, for Basic EPS purposes, the weighted average number of common shares outstanding was 136,000.

Part (1) A partial income statement for a company for the year 2022 is presented below:

Income before interest and taxes $600,000 Interest expense (100,000) Income before income taxes $500,000 Income tax expense (110,000) Net income $390,000

The $100,000 interest relates to convertible bonds, $1,000,000 par, 10% interest. Each $1,000 bond is convertible into 25 common shares. The bonds were issued in 2020. Bondholders have the option to convert the bonds starting in 2025.

(a) Calculate the basic EPS for 2022 (b) Calculate the diluted EPS for 2022

Part (2) Assume that the bonds in Part (1) are NOT convertible.

The company had Convertible, cumulative preferred stock. These shares were issued in July 1, 2021, and each $100 par share is entitled to a 5% dividend. There are 10,000 outstanding shares, and each is convertible into five shares of common stock. NO dividends were paid in 2021. In July 2022, the company paid the 2021 and 2022 preferred dividends.

(a) Calculate the basic EPS for 2022 (b) Calculate the diluted EPS for 2022 Part (3) Assume that the company has both bond and preferred stock (as described above), but they are NOT convertible.

On April 1, 2022, the company granted options for 60,000 shares of common stock, which can be exercised in 2024. The exercise price is $20 and the average market price for the last nine months of 2022 was $25.

Compute Diluted EPS for the year 2022 assuming the same Basic EPS you computed in Part (2)