The following information pertains to the Year 1 capital structure and financial records of Evans Professional Services Corp. Convertible 8% bonds, issued at par April 1, Year 1. Each $1,000 bond is convertible into 50 shares of common stock. $1,000,000 Convertible 10% bonds, issued at par several years ago. Each $1,000 bond is convertible into 50 shares of common stock. $4,000,000 Convertible noncumulative 6% preferred stock, $100 par issued at $104. Each preferred share is convertible into 4 shares of common stock. $800,000 Nonconvertible cumulative 8% preferred stock, $20 par $100,000 Net income, Year 1 $2,400,000 Other information: Vested, incentive employee stock options, exercisable at $23 per share, 400,000 options outstanding for the entire year. Vested, incentive employee stock options, exercisable at $14 per share, 400,000 options outstanding for the entire year. Warrants exercisable at $15 per share, 20,000 warrants outstanding for the entire year. Preferred dividends were declared and paid at the stated rates. On December 31, Year 1, the price per common share was $22, and the average price for the year was $20. All convertible securities, options, and warrants have been adjusted for the stock dividend. The tax rate is 20%. The following common shares transactions took place during the year. Date Shares transactions Number of shares January 1, Year 1 Shares outstanding, 800,000 April 1, Year 1 Shares issued 200,000 June 1, Year 1 50% stock dividend issued 500,000 October 1, Year 1 Treasury shares repurchased 40,000

Required:

1. Compute Basic Earnings per Share, showing the number to 4 decimal places.

2. Identify and list the potentially dilutive securities. Note that any security that may require shares to be issued at some point is a potentially dilutive security.

3. Compute (1) the incremental effect on net income, (2) the incremental effect on weighted average shares outstanding, and (3) Earnings per Incremental Share for each potentially dilutive security.

4. Compute Diluted Earnings per Share, showing the number to 4 decimal places. Remember that this is an iterative calculation.