The Lovelace Company had the following capital stock items in its stockholders equity on 12/31/17:

12% cumulative preferred stock, $25 par, 1,200,000 shares authorized, 700,000 shares issued $17,500,000

Common stock, $10 par, 8,000,000 shares authorized, 2,000,000 shares issued 20,000,000

Each preferred stock is convertible into one share of common stock. The conversion rate is to be automatically adjusted for stock splits and stock dividends.

Lovelace also has $3,000,000 of 9% bonds that were issued at par in 2015 and mature in 2025. Each $1,000 bond is convertible into 12 shares of common stock. The conversion rate is not adjustable for stock dividends or splits.

The following transactions occurred in 2018:

1. A 5% common stock dividend that had been declared in December 2017 was issued on 1/1/18.

2. On 1/1/18, Lovelace offered ten key employees a stock option plan, offering them each the right to purchase 15,000 shares of Lovelace common stock at a price of $20. The market price of the common stock on the date of grant was $20, and the fair value of each option is $2. The options may be exercised any time after 1/1/18, and the service period is two years. The stock price at the end of the year was $25; average stock price for the year was $22.50.

3. On 6/1/18, the board authorized a 2-for-1 common stock split for 7/1/18.

4. In lieu of a cash payment, 300,000 shares of common stock were issued to acquire a building on 8/1/18, when the market price of the stock was $23.

5. On 11/1/18, 240,000 shares of common stock were repurchased on the open market at $24 per share.

6. Preferred stock dividends were declared quarterly, on the last day of each quarter, and were paid on the 15th of the month following. Common stock dividends were declared on April 15 ($.30 per share) and on October 15 ($.20 per share) to shareholders of record on April 25 and October 25, to be paid on May 15 and November 15.

Net income for 2018 was $11,550,000. Lovelace is subject to a 40% income tax rate.

Required:

a) Prepare all journal entries required in 2018 as a result of the transactions listed above.

b) Compute Lovelaces basic and diluted EPS for the year ended 12/31/18.