Question 1: A company is calculating diluted earnings per share. It has two awards of compensatory executive stock options outstanding. The first award is for 20,000 options that are fully vested. Each option allows the holder to purchased one share at the exercise price of $18 per share. The second award is for 30,000 options that are fully vested. Each option allows the holder to purchase one share at the exercise price of $26 per share. The average stock price for the year was $25 per share, and the year-end stock price was $27 per share. How many incremental shares will be included in the calculation of diluted earnings per share?

Question 2: A company is calculating diluted earnings per share. It has two convertible securities. The first convertible security is 1,000 shares of $100-par, 6% convertible preferred stock (total par value of $100,000). These shares can be converted into a total of 4,000 shares of $1-par common stock. The second convertible security is $3,000,000 in 8% bonds, issued at par. The bonds can be converted into a total of 150,000 shares. The companys tax rate is 25%. Calculate earnings per incremental share for each of these securities.

For future review: can you calculate weighted average shares outstanding and basic earnings per share?