On December 31, 2020, Scott Company had 70,000 shares of common stock outstanding for the entire year. On April 1, 2021, Scott purchased 2,500 shares of common stock on the open market as treasury stock paying $45 per share and sold 1,000 of the treasury shares on June 1, 2021, for $47 per share. Scott issued a 15% common stock dividend on 9/2/2021. Net income for 2021 was $253,267. The income tax rate is 25%. Other relevant information is as follows:

1. Outstanding on December 31, 2020, were stock options giving key personnel the option to buy 30,000 (adjusted for the stock dividends) common shares at $45. In 2021, the average market price of the common shares was $50 (adjusted for the stock dividends) on December 31, 2021. No stock options were exercised during the year.
2. Scott had 5,000 shares of 9%, $50 par value, cumulative convertible preferred stock outstanding on December 31, 2020. Preferred dividends for 2021 amounted to $22,500. Each convertible preferred stock can be converted into two shares of common stock. No convertible preferred stock had been converted by 12/31/2021.
3. $100,000, 9% bonds were issued at a premium on December 20, 2020. None of the bonds had been converted by December 31, 2021. A bond interest expense of $8,500 was recorded in 2021. The premium is being amortized at $500 in 2021. Each $1,000 bond is convertible into 21 shares of common stock.

Required:

Compute the weighted average shares outstanding used in computing the basic earnings per share of 2021 for Scott Company (note: you need to show your computation to receive credits).

(b) (20 points) Compute the basic and diluted earnings per share of 2021 for Scott Company (note: use 79,105 shares as the number of shares for calculating the basic earnings per share of 2021 regardless of your answer in (a)).