1. On July 5, 2017, Alpha Corp. purchased a call option for $2,400, giving it the right to buy 1,000 shares of Omega Corp. for $40 per share. On Aug 18, 2017, when the option value is $12,000, Omega settles the option for cash. The entry on Alphas books to record the settlement is:

1. Cash 12,000

Derivatives- Financial Assets/Liabilities 2,400

Gain 9,600

2. Cash 12,000

Gain 12,000

3. Cash 12,000

Derivatives Financial Assets/Liabilities 12,000

4. Derivatives- Financial Assets/Liabilities 2,400

Cash 9,600

Gain 12,000

2. In calculating diluted earnings per share, the equivalent number of convertible preferred shares is added as an adjustment to the denominator. If the preferred shares are cumulative, which amount should be added as an adjustment to the numerator?

1. Annual preferred dividend
2. Annual preferred dividend times (one minus income tax rate)
3. Annual preferred dividend times the income tax rate
4. Annual preferred dividend divided by the income tax rate