Question 5: The excerpt from the balance sheet of Osman Glasses Inc. follows :

Long Term Debt:

Notes Payable, 10%

7% convertible bonds payable 9% convertible bonds payable

Total Long-Term Debt Shareholders Equity:

$1,000,000 2,000,000 3,000,000

$6,000,000 $2,000,000 $400,000

2,100,000

9,000,000 $13,500,000

Osman Glasses

Selected Balance Sheet Information At December 31, 2020

$10 cumulative dividend, convertible preferred shares

No par value, 100,000 shares authorized 20,000 shares issued and outstanding Common shares, no par value,

5,000,000 shares authorized 400,000 shares issued and outstanding Contributed surplus

Retained Earnings

Total Shareholders Equity Additional Information

1. Options were granted in July 2018 to purchase 50,000 common shares at $16 per shares. The average market price of the companys common shares during 2020 was $24 per common share. The options expire in 2025 and no option was exercised during 2020.

2. The 7% convertible bonds were issued in 2019 at face value. The 9% convertible bonds were issued on April 1, 2020, at face value. Each convertible bond is convertible into 40 common shares [each bond has a face value of $1,000]

3. The $10 cumulative, convertible preferred shares were issued at the beginning of 2017. Each preferred share is convertible into 5 common shares.

4. The average income tax rate is 40%

5. The 400,000 common shares were issued at $1 per share and were outstanding during the entire

year.

6. Preferred dividends were not declared in 2020.

7. Net Income was $1.5 million in 2020.

8. No bonds or preferred shares were converted in 2020.

a. Calculate basic earnings per share for 2020. [1 Mark]

b. Calculate diluted earnings per share for 2020. [5 Marks]