Tropical Vacation Inc. has tentatively prepared its financial statements for the year ended December 31, 2020, and has submitted them to you for review. The equity account balances at December 31, 2020, are as follows:

Preferred shares, $2 cumulative, 30,000 shares authorized,18,000 shares issued and outstanding ...................................................... $416,080Common shares, unlimited shares authorized;132,000 shares issued and outstanding ...................................................... 622,272Retained earnings ........................................................................................... 796,960

The company?s 2020 profit was $480,000 and no cash dividends were declared. The only share transaction that occurred during the year was the issuance of 24,000 common shares on March 31, 2020. Earnings per share for 2020 were calculated as follows:

Required

1. Explain what is wrong with the earnings per share calculation, indicating what corrections should be made to both the numerator and the denominator.

2. Explain how your answer to requirement 1 could be different if the preferred shares were not cumulative and if the issuance of 24,000 shares had been a share dividend.

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Profit Common plus preferred shares outstanding on Dec. 31 $480,000 = $3.20 132,000 + 18,000