Pundit Corporations 2016 financial statements include the following discussion regarding its use of put options (from Note 9): In January 2014, the company implemented a stock repurchase program to repurchase up to 1 million shares of its stock. In conjunction with the companys stock repurchase program, the company issues put options that give the purchaser the right to sell shares of Pundit stock to the company at specified prices on specific dates. Plan activity is as follows: Put Options Balance, December 31, 2014 600,000 Options issued 100,000 Options exercised (300,000) Balance, December 31, 2015 400,000 Options issued 0 Options exercised 0 Balance, December 31, 2016 400,000 Pundits stock price was $30 per share on 12/31/16, and the companys stock price averaged $32 per share during 2016. Assume that all issued put options can be exercised immediately after issuance and that all of the outstanding put options on 12/31/16 have an exercise price of $36 per share. Also, assume that Pundits net income for 2016 was $10 million and that the companys weighted-average number of common shares outstanding for 2016 was 4.5 million. Pundit has no other potential common shares. Required: 1. Explain and illustrate how the outstanding put options should be reflected in the 2016 diluted EPS calculation (provide the full citation(s) from the FASB codification that supports your answer). 2. Calculate Pundits basic and diluted EPS for 2016.