You have been assigned to audit Superiors calculation for Basic and Dilutive EPS for the year ending October 31, 2023. Superiors calculation for Basic EPS for the year ending October 31, 2023 is $3.75 and you have verified this to be correct.

Superior Corporation has two potentially dilutive securities that they must include to calculate Diluted EPS. The first is convertible preferred stock and the second is convertible bonds. When calculating diluted EPS the impact of the convertible preferred stock is a reduction in EPS of $.03 and the impact of the convertible bonds is an increase of $.02 to EPS. (You have verified these individual calculations to be correct.) Based on these calculations Superior Corporation has determined that EPS should be presented as follows:

Basic EPS: $3.75

Diluted EPS: $3.74

Your manager has assigned you the task of researching U.S. GAAP to determine if Superior has correctly calculated the Diluted EPS for the year ending October 31, 2023.

Accounting Issue: What is the correct way to calculate Diluted EPS assuming that the convertible preferred stock and convertible bonds had been converted into common shares issued & outstanding as of the beginning of the fiscal year?

Interpretation of Guidance:

1. The correct way to calculate Diluted EPS is to include:
   1. The convertible preferred stock and convertible bonds
   2. Only the convertible preferred stock
   3. Only the convertible bonds
   4. Neither the convertible preferred stock or convertible bonds.

2. The correct amount of Diluted EPS is: ______________