Colnago Corporation reports the following capital structure at the beginning and end of the year: Each share of preferred stock is convertible into 0.5 share of common stock.

Compute diluted EPS for the year

. a. $3.75 b. $3.00 c. $4.29 d. $4.00

Explain the correct answer!

Beginning End $20,000 $20,000 Preferred stock, $10 par value, 2,000 shares issued and outstanding at January 1 and December 31 Common stock, $10 par value, 7,000 shares issued; 7,000 shares outstanding at beginning and end of year Additional paid-in capital Retained earnings Treasury shares-common Total shareholders' equity 40,000 40,000 240,000 240,000 160,000 182,000 - $460.000 $482.000 Retained earnings changed during the year as follows: Retained earnings, beginning $160,000 Net income 32,000 Preferred stock dividends (2,000) Common stock dividends (8,000) Retained earnings, end $182,000