Shown below is the stockholders' equity section of Lchrer Corp.'s balance sheet at 12/31/04

15% cumulative preferred stock, $100 par $50,000

Common stock, $2 par $120,000

Additional paid-in capital $160,000

Retained earnings $340,000

Total stockholders' equity $670.000

Transactions during 2005

On January 1, Lehrer issued $90,000 face amount of 10% convertible bonds for cash. Each bond ($1,000 face) can be converted to 30 shares of common stock at any time. The bonds were issued at a discount, and bond interest expense reported in the company's 2005 income statement was $9,500. No bonds were converted during 2005

On 9/1/2005, Lehrer issued 18,000 common shares for cash.

On 10/31 Lehrer purchased 6,000 common shares and held them as treasury stock.

Additional information:

Lehrer had options to purchase 20,000 common shares at $19 outstanding throughout 2005. None of these options were exercised during the year.

Lehrer's 2005 net income was $170,000. The company's common stock traded at an average price of $25 during the year. Lehrer's tax rate, applicable to all items of profit and loss, is 30%.

Oustanding shares on 12/31/04 = 60,000 shares

Weighted average common shares outstanding during 2005 = 65,000 shares

Basic EPS for 2005 = 2.50

THE QUESTION.

What amount should Lehrer report as diluted EPS? (Show calculations and show how the order of inclusion of potential common shares was determined.) Hint: Bonds are antidilutive. The answer is 2.33. Show me the calculation involved.