Illustration 4:

On January 1, 2020, Sunny Company issued 10-year, $1,000,000 face value, 6% bonds, at par.

Each $1,000 bonds is convertible into 15 shares of Sunny common stock.

Sunnys net income in 2020 was $200,000, and its tax rate was 40%.

The company had 100,000 shares of common stock outstanding throughout 2020.

None of the bonds were converted in 2020.

Bunny Companys net income for 2020 is $100,000. The only potentially dilutive securities outstanding were 10,000 options issued during 2019, each exercisable for one share at $10. None has been exercised, and 100,000 shares of common were outstanding during 2020. The average market price of the stock during 2020 was $20.

Instructions:

(a)Compute basic earnings per share for 2020 in each company.

(b)Compute diluted earnings per share for 2020 in each company.

Please do not skip a step. I'm trying to learn this.