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On December 31, 2023, Dow Steel Corporation had 700,000 shares of common stock and 310,000 shares of 10%, noncumulative, nonconvertible preferred stock issued and outstanding. - Dow issued a 5% common stock dividend on May 15 and paid cash dividends of $500,000 and $79,000 to common and preferred shareholders, respectively, on December 15, 2024. - On February 28, 2024, Dow sold 64,000 common shares. - In keeping with its long-term share repurchase plan, 6,000 shares were retired on July 1 . - Dow's net income for the year ended December 31, 2024, was $2,600,000. - The income tax rate is 25%. - Also, as a part of a 2023 agreement for the acquisition of Merrill Cable Company, another 31,000 shares (already adjusted for the stock dividend) are to be issued to former Merrill shareholders on December 31, 2025, if Merrill's 2025 net income is at least $600,000. - In 2024, Merrill's net income was \$730,000. - As part of an incentive compensation plan, Dow granted incentive stock options to division managers on December 31 of the current and each of the previous two years. - Each option permits its holder to buy one share of common stock at an exercise price equal to market value at the date of grant and can be exercised one year from that date. Information concerning the number of options granted and common share prices follows: Text - The market price of the common stock averaged $34 per share during 2024. - On July 12, 2022, Dow issued $800,000 of convertible 8% bonds at face value. - Each $1,000 bond is convertible into 40 common shares (adjusted for the stock dividend). Required: Compute Dow's basic and diluted earnings per share for the year ended December 31, 2024. Note: Do not round intermediate calculations. Except for per share amounts, enter your answers in thousands (i.e., 10,000 should be entered as 10). Round "Earnings per share" answer to 2 decimal places. Explanation The options issued in 2023 are not considered when calculating 2024 EPS because the exercise price (\$25) is not less than the 2024 average market price of $24. As a result, these options are antidilutive. The options issued in 2024 do not affect the calculation of 2024 EPS for two reasons related to their being issued at December 31 . First, the exercise price ($24) is equal to the 2024 average market price of $24. While they are not antidilutive, neither are they dilutive. Second, even if the exercise price had been less than the market price, these options would be excluded. Options are assumed exercised at the beginning of the year or when granted, whichever is later-when granted, in this case. So, the fraction of the year the shares are assumed outstanding is 0/12, meaning no increase in the weighted-average shares. The options issued in 2022 are considered exercised for 15,000 shares when calculating 2024 EPS because the exercise price (\$16) is lss than the 2024 average market price of $24. Treasury shares are assumed repurchased at the average price for diluted EPS: $24(averagemarketprice)10,000shares (amounts in thousands, except per share amounts) Basic EPS Diluted EPS "The contingently issuable shares are considered issued when calculating diluted EPS because the condition for issuance (Merrill net income > $580,000) currently is being met. The bonds are considered converted when calculating diluted EPS: 600 bonds 35 shares =21,000 shares upon conversion. Interest =$600,000 8%=$48,000