Exercise 1 The controller at Stewart Pharmaceutical Industries, a public company, is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for Stewart's financial statements. Below is selected financial informati for the fiscal year ended June 30, 2017. Long-term debt Note payable, 10% 8% convertible bond payable 10% bond payable Total long-term debt $ 1,000,000 $ 5,000,000 $ 6,000,000 $ 12,000,000 Equity Preferred stock, 6% cumulative, $50 par value, 100,000 shares authorized, 25,000 shares issued and outstanding $ 1,250,000 Common stock, $1, par, 10,000,000 shares authorized, 1,000,000 shared issued and outstanding $ 1,000,000 APIC $ 4,000,000 Retained earnings $ 6,000,000 Total Equity $ 12,250,000 The following transactions have also occurred at Stewart a. Options were granted on July 1, 2016, to purchase 200,000 shares at $15 per share. Although no options were exercised during fiscal year 2017, the average price per common share during fiscal year 2017 was $20 per share. b. Each bond was issued at face value. The 8% convertible bonds will convert into common stock at 50 shares per $1,000 bond. The bonds are exercisable after 5 years and were issued in fiscal year 2016. c. The preferred stock was issued in 2016. d. There are no preferred dividends in arrears; however, preferred dividends were not declared in fiscal year 2017. e. The 1,000,000 shares of common stock were outstanding for the entire 2017 fiscal year. f. Net income for fiscal year 2017 was $1,500,000, and the average income tax rate is 40%. Required [Show all the calculations to receive full points] 1. Compute the basic earnings per share 2. Compute the diluted earnings per share