The following section of the balance sheet of AH Corporation is presented for analysis; assumptions related to the capital structure follow:

AH Corporation

Selected Balance Sheet Data as at December 31, 2018

Long Term Debt:

• Notes Payable, 14%: $1,000,000
• 7% convertible bonds: 2,000,000
• 9% convertible bonds: 3,000,000

Total Long Term Debt: $6,000,000

Stockholders Equity

• 10% convertible, cumulative Preferred Stock, Par value $100, issued and outstanding 20,000 out of 100,000 authorized: $2,000,000
• Common Stock, $1 par, 400,000 outstanding out of 5,000,000 authorized: $400,000
• Additional Paid In Capital: $2,100,000
• Retailed Earnings: $9,000,000

Total Stockholders Equity: $13,500,000

Notes and Assumptions

• Options were granted in July 2016 to purchase 30,000 shares of common stock at $15 per share. The average market price of AH Corporations common stock during 2018 was $25 per share. The options expire in 2023 and no options were exercised during 2018.
• The 7% bonds were issued in 2017 at face value. The 9% convertible bonds were issued on July 1, 2018 at face value. Each convertible bond is convertible into 50 shares of common stock (each bond has a face value of $1,000).
• The 10% cumulative, convertible preferred stock was issued at the beginning of 2016 at par. Each share of preferred is convertible into four shares of common stock.
• The average income tax rate is 35%.
• The 400,000 shares of common stock were outstanding during the entire year.
• Preferred dividends were not declared in 2018.
• Net income was $1,200,000 in 2018.
• No bonds or preferred stock were converted during 2018.

Required:

1. Compute basic earnings per share for AH Corporation for 2018.
2. Compute diluted earnings per share for Andrews for 2018.
3. For you as an analyst, what is the significance of knowing the Diluted EPS?

(Make sure to show all the required calculations in each step)