Isabelle Leclerc is the controller at Camden Pharmaceutical Industries, a public company. She is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for Camden's external financial statements. The following is selected financial information for the fiscal year ended June 30, 2014:

The following transactions have also occurred at Camden:
1. Options were granted by the company in 2012 to purchase 100,000 shares at $15 per share. Although no options were exercised during 2014, the average price per common share during fiscal year 2014 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 2013. Ignore any requirement to record the bonds' debt and equity components separately.
3. The $4.25 preferred shares were issued in 2012.
4. There are no preferred dividends in arrears, and preferred dividends were not declared in fiscal year 2014.
5. The 1 million common shares were outstanding for the entire 2014 fiscal year.
6. Net income for fiscal year 2014 was $1.5 million, and the average income tax rate was 30%.
Instructions
(a) For the fiscal year ended June 30, 2014, calculate the following for Camden 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.
(c) From the perspective of a common shareholder, provide support for the treatment of the preferred dividends in calculating Camden Pharmaceutical Industries' basic and diluted earnings per share.

CAMDEN PHARMACEUTICAL INDUSTRIES Selected Statement of Financial Position Information June 30, 2014 Long-term debt Notes payable, 10% 7% convertible bonds payable 10% bonds payable $1,000,000 5,000,000 6,000,000 $12,000,000 Total long-term debt Shareholders' equity Preferred shares, $4.25 cumulative, 100,000 shares $ 1,250,000 authorized, 25,000 shares issued and outstanding Common shares, unlimited number of shares authorized, 1,000,000 shares issued and outstanding Contributed surplus-conversion rights Retained earnings 4,500,000 500,000 6,000,000 $12,250,000 Total shareholders' equity