At December 31, 2015, Boltons Corporation had 600,00 shares of common stock outstanding. Boltons sold 40,000 shares on march 31 and required 60,000 shares on September 30. Net income for 2015 was $1,160,000. The tax rate is 40%. The average market price during 2015 was $40.
Boltons 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 December 31, 2014. Each $1,000 bond is convertible into 27 shares of common stock.
5. 20,000 options to buy common stock at $30 per share
6. 20,000 options to buy common stock at $42 per share
7. 40,000 options to buy common stock at $25 per share
Required:
a. Calculate the basic earnings per share
b. Calculate the diluted earnings per share