Please explain the diluted EPS. Especially, +(8-6) assumed exercise options (denominator) and tax savings ($80-40%)*($80)..Please show all calculations. Thanks

P 1913 EPS; nonconvertible preferred stock; treasury shares; shares sold; stock dividend; options; convertible bonds; contingently issuable shares LO194 throughLO1911

(Note: This is a variation of P1913, modified to include convertible bonds and contingently issuable shares.) On December 31, 2015, Dow Steel Corporation had 600,000 shares of common stock and 300,000 shares of 8%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 4% common stock dividend on May 15 and paid cash dividends of $400,000 and $75,000 to common and preferred shareholders, respectively, on December 15, 2016. On February 28, 2016, Dow sold 60,000 common shares. In keeping with its long-term share repurchase plan, 2,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2016, was $2,100,000. The income tax rate is 40%. Also, as a part of a 2015 agreement for the acquisition of Merrill Cable Company, another 23,000 shares (already adjusted for the stock dividend) are to be issued to former Merrill shareholders on December 31, 2017, if Merrill's 2017 net income is at least $500,000. In 2016, Merrill's net income was $630,000. As part of an incentive compensation plan, Dow granted incentive stock options to division managers at December 31 of the current and each of the previous two years. Each option permits its holder to buy one share of common stock at an exercise price equal to market value at the date of grant and can be exercised one year from that date. Information concerning the number of options granted and common share prices follows: The market price of the common stock averaged $32 per share during 2016. On July 12, 2014, Dow issued $800,000 of convertible 10% bonds at face value. Each $1,000 bond is convertible into 30 common shares (adjusted for the stock dividend). Required: Compute Dow's basic and diluted earnings per share for the year ended December 31, 2016.

Diluted EPS 19-13 Note: This is a variation of P19-13, modified to include convertible bonds and contingently issuable shares.) preferred dividends after-tax interest savings + $80-40%($80) PS: nonconvertible referred stock; treasury On December 31, 2015, Dow Steel Corporation had 600,000 shares of hares; shares sold; ock dividend; options; nonconvertible preferred stock issued and outstanding. Dow issued a 4% onvertible bonds: ontingently issuable and S75,000 to common and preferred shareholders, respectively, on ares $2,073 common stock and 300,000 shares of 8%, noncumulative. common stock dividend on May 15 and paid cash dividends of $400,000 December 15, 2016 --$2.86 600104) +60(10/%2)1.04) -2 (6/12) +(8-6) 23* + 24" 724 shares assumed exercise contingent conversion retired of options On February 28, 2016, Dow sold 60,000 common shares. In keeping with its long-term share repurchase plan, 2,000 shares were retired on July 1, Dow's net income for the year ended December 31, 2016, was $2.100,000. The income tax rate is 40%. Also, as a part of a 2015 agreement for the acquisition of Merrill Cable Company, another 23,000 shares (alroady adjusted for the stock dividend) are to be issued to former Merril shareholders on December 31, 2017, if Merrill's 2017 net ncome is at least $500,000. In 2016, Merrills net income was $630,000. at Jan. 1 shares of bonds L019-4 through 019-11 * The contingently issuable shares are considered issued when calculating dilute EPS because the condition for issuance (Merrill net income > S500,000) currently is being met As part of an incentive compensation plan, Dow granted incentive stock options to division managers at December 31 of the current and each of the previous two years. Each option permits its holder to buy one share of common stock at an exercise price equal to market value at the date of grant and can be exercised one year from that date. Information concerning the number of options granted and common share prices ** The bonds are considered converted when calculating diluted EPS: 800 bonds : 30 shares -24,000 shares upon conversion. Interest = $800,000 x 10% 8 Options Granted (adjustod for the stock dividond) Date Granted Decomber 31, 2014 December 31, 2015 December 31, 2016 3,000 The market price of the common stock averaged $32 per share during On July 12, 2014, Dow issued $800,000 of convertible 10% bonds at face value. Each $1.000 bond is convertible into 30 common shares (adjusted for the stock dividend). Required Compute Dow's basic and diluted earnings por share for the year ended December 31, 2016 Diluted EPS 19-13 Note: This is a variation of P19-13, modified to include convertible bonds and contingently issuable shares.) preferred dividends after-tax interest savings + $80-40%($80) PS: nonconvertible referred stock; treasury On December 31, 2015, Dow Steel Corporation had 600,000 shares of hares; shares sold; ock dividend; options; nonconvertible preferred stock issued and outstanding. Dow issued a 4% onvertible bonds: ontingently issuable and S75,000 to common and preferred shareholders, respectively, on ares $2,073 common stock and 300,000 shares of 8%, noncumulative. common stock dividend on May 15 and paid cash dividends of $400,000 December 15, 2016 --$2.86 600104) +60(10/%2)1.04) -2 (6/12) +(8-6) 23* + 24" 724 shares assumed exercise contingent conversion retired of options On February 28, 2016, Dow sold 60,000 common shares. In keeping with its long-term share repurchase plan, 2,000 shares were retired on July 1, Dow's net income for the year ended December 31, 2016, was $2.100,000. The income tax rate is 40%. Also, as a part of a 2015 agreement for the acquisition of Merrill Cable Company, another 23,000 shares (alroady adjusted for the stock dividend) are to be issued to former Merril shareholders on December 31, 2017, if Merrill's 2017 net ncome is at least $500,000. In 2016, Merrills net income was $630,000. at Jan. 1 shares of bonds L019-4 through 019-11 * The contingently issuable shares are considered issued when calculating dilute EPS because the condition for issuance (Merrill net income > S500,000) currently is being met As part of an incentive compensation plan, Dow granted incentive stock options to division managers at December 31 of the current and each of the previous two years. Each option permits its holder to buy one share of common stock at an exercise price equal to market value at the date of grant and can be exercised one year from that date. Information concerning the number of options granted and common share prices ** The bonds are considered converted when calculating diluted EPS: 800 bonds : 30 shares -24,000 shares upon conversion. Interest = $800,000 x 10% 8 Options Granted (adjustod for the stock dividond) Date Granted Decomber 31, 2014 December 31, 2015 December 31, 2016 3,000 The market price of the common stock averaged $32 per share during On July 12, 2014, Dow issued $800,000 of convertible 10% bonds at face value. Each $1.000 bond is convertible into 30 common shares (adjusted for the stock dividend). Required Compute Dow's basic and diluted earnings por share for the year ended December 31, 2016