Problem 3: Basic and Dilutive Earnings per Share Presented below is information related to the Merlin Company 1. Net Income $900.000 2. Capital Structure: a. 8% cumulative preferred stock, $10 par, 40,000 shares issued and outstanding, convertible into 30,000 shares of common stock $400.000 b. $1 par common stock, 490,000 shares issued and Outstanding on December 31. Assume the weighted Average shares outstanding to be 470,000. c. At year-end, there were fully vested incentive stock options outstanding for 30,000 shares of common stock. The exercise price was $18. $490,000 3. Other Information: a. Average market price per share of common stock during entire year $20 b. Income tax rate 25% c. $1,000,000 face amount of 10% convertible bonds issued in 2018 and convertible into 50,000 common shares. Instructions (Using the working papers provided):

Compute diluted earnings per share for 2021. 1. Compute incremental information.

2. Rank

3. Complete the dilution schedule.