Wheeler Company began 2007 with 10,000 shares of $10 par common stock and 2,000 shares of 9.4%, $100 par, convertible preferred stock outstanding. On April 2 and June 1, respectively, the company issued 2,000 and 6,000 additional shares of common stock. On November 16 the company declared a two-for-one stock split. Compensatory share options that currently allow the purchase of 2,000 shares of common stock at $16 per share were outstanding during 2007. To date, none of these options have been exercised. The unrecognized compensation cost (net of tax) related to these options is $2 per share. The preferred stock was issued in 2006. Each share of preferred stock is currently convertible into 4 shares of common stock. To date, no preferred stock has been converted. Current dividends have been paid on both preferred and common stock. Net income for 2007 totaled $109,800. The company is subject to a 30% income tax rate. The common stock sold at an average market price of $24 per share during 2007.

Required

1. Prepare supporting calculations and compute:

a. Basic earnings per share

b. Diluted earnings per share

2. Show how Wheeler Company would report the earnings per share on its 2007 income statement. Include an accompanying note to the financial statements.