EARNINGS PER SHARE

The company reported net income of $300,000 for the year and 100,000 shares of common stock were outstanding during the year. The income tax rate is 40%. The company has the following potentially dilutive securities. Assume that each of the securities was issued on or before January 1.

Stock options that allow employees to purchase 30,000 shares of common stock. The option exercise price is $10 per share. The average stock price for the year was $18.

10,000 convertible preferred shares (cumulative, 5%, $100 par). Each preferred share is convertible into four shares of common stock.

500 convertible bonds ($1,000 face value, 10%). Each bond is convertible into 40 shares of common stock.

Required:

a. Compute basic EPS.

b. Determine whether each security is dilutive.

c. Compute diluted EPS.