Calculate the basic earnings per share and calculate the


At December 31, 2016, the Barack Obama Company had 600,000 shares of common stock outstanding. During 2017, Obama sold 40,000 shares on March 31 and reacquired 60,000 shares on September 30. Net income for 2017 was $1,160,000. The tax rate is 40%. The average market price during 2017 was $40.

Obama's capital structure contained the following items.

1. 20,000 shares of 8% convertible cumulative preferred stock, par $100, sold at 110. Each share of preferred stock is convertible into 5 shares of common stock.

2. $2,000,000 face value of 7.5% bonds sold at par.

3. $1,000,000 face value of 7% convertible bonds sold at par. Each $1,000 bond is convertible into 40 shares of common stock.

4. $3,000,000 face value of 6% convertible bonds sold to yield 7%. Unamortized bond discount is $100,000 at January 1, 2017. Each $1,000 bond is convertible into 27 shares of common stock. [Remember that interest expense is calculated using the effective interest method].

5. 20,000 options to buy common stock at $42 per share.

6. 40,000 options to buy common stock at $25 per share.

7. 20,000 options to buy common stock at $30 per share.

Required

a. Calculate the basic earnings per share.

b. Calculate the diluted earnings per share.

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Accounting Basics: Calculate the basic earnings per share and calculate the
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