The following information is for Sandhill Limited for 2020:

Preferred shares,a authorized 100,000 shares; issued 21,000 shares Common shares (unlimited authorized, 64,000 issued) Contributed surplus

Total paid-in capital Retained earnings

Total shareholders equity

630,000 1,600,000 121,000

2,351,000 2,027,500

4,378,500

Net income for the year		$2,290,000
8% convertible bonds issued at par ($1,000 per bond), with each bond convertible into 35 common shares		2,120,000
6% convertible, cumulative preferred shares, $100 par value, with each share convertible into 3 common shares		4,120,000
Common shares (300,000 shares outstanding)		3,000,000
Stock options (granted in a prior year) to purchase 75,000 common shares at $15 per share		600,000
Tax rate for 2020		30%
Average market price of common shares		$20	per share

There were no changes during 2020 in the number of common shares, preferred shares, or convertible bonds outstanding. For simplicity, ignore the requirement to book the convertible bonds equity portion separately.

Required:

1. a) Calculate the income effect of the dividends on preferred shares. (2 marks)

2. b) Calculate basic earnings per share for 2020. (3 marks)

3. c) Calculate diluted earnings per share for 2020. (10 marks)

4. d) What is the difference between 8% bonds and 8% convertible bonds? (5 marks)