Denise Laframboise is the controller at Yeung Pharmaceutical Industries, a public company. She is currently preparing the

Question:

Denise Laframboise is the controller at Yeung Pharmaceutical Industries, a public company. She is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for Yeung€™s external financial statements. The following is selected financial information for the fiscal year ended June 30, 2011:
YEUNG PHARMACEUTICAL INDUSTRIES
Selected Statement of Financial Position Information
June 30, 2011

The following transactions have also occurred at Yeung:
1. Options were granted by the company in 2009 to purchase 100,000 shares at $15 per share. Although no options were exercised during 2011, the average price per common share during fiscal year 2011 was $20.
2. Each bond was issued at face value. The 7% convertible debenture will convert into common shares at 50 shares per $1,000 bond. It is exercisable after five years and was issued in 2010. Ignore any requirement to record the bonds€™ debt and equity components separately.
3. The $4.25 preferred shares were issued in 2009.
4. There are no preferred dividends in arrears; however, preferred dividends were not declared in fiscal year 2011.
5. The 1 million common shares were outstanding for the entire 2011 fiscal year.
6. Net income for fiscal year 2011 was $1.5 million, and the average income tax rate was 40%.
Instructions
(a) For the fiscal year ended June 30, 2011, calculate the following for Yeung Pharmaceutical Industries:
1. Basic earnings per share
2. Diluted earnings per share
(b) Explain how premiums and discounts on outstanding convertible bonds affect the calculation of diluted earnings per share.