Diluted EPS - SHOW ALL CALCULATIONS(18 marks)

Lalia Incorporated reported after tax profits of $6,500,000 in 2017.Selected information on Lalia's capital structure is as follows at December 31, 2017, the end of its fiscal year:

Long Term Debt:

Bonds Payable, 9%, $10,000,000 par value, due 2027, convertible into common sharesat a rate of two common shares for each $100 bond; interest expense on the bonds for the entire year was $900,000

Shareholders' Equity:

Preferred Shares, $4.48, cumulative, convertible into common shares at a rate of two common shares for each preferred share, 150,000 outstanding

Preferred Shares, $2.50, cumulative, convertible into common sharesat a rate of one common share for each preferred share, 400,000 outstanding

Common Shares oustanding, 1,500,000

100,000 options to purchase common shares (options have been oustanding all year); exercise price, $20; options expire 2023; each option allows the purchase of one common share

TRANSACTIONS DURING 2017:

a)On July 1, 2017, 400,000 common shares were issued on the conversion of200,000 of the $4.48 preferred shares.

b)On December 1, 2017, 100,000 common shares were issued for cash.

OTHER INFORMATION:

a)Average common share market price during the year $40 per share

b)Tax rate:25%

c)Quarterly dividends were declared on March 31, June 30, September 30, and December 31

d)Common shares outstanding at January 1, 2017 were 1,000,000.

Required:ROUND ALL DOLLAR AMOUNTS TO 2 DECIMAL PLACES

a)Calculate basic EPS for the 2017 year.(6 marks)

b)Test each security for dilution and identify each as dilutive or anti-dilutive.If options are dilutive, show the calculation of new shares issued.SHOW ALL CALCULATIONS.(8 marks)

c)Prepare a cascade worksheet to show the calculation of diluted EPS, beginning with basic EPS.(4 marks)