Computing Earnings per Share: Stock Options

Falcon Company has a compensatory stock option plan under which options to buy $612,000$ common shares were issued in Year $1.$ These options are exercisable during Year $2$ and Year $3$ at $$38$ per share.

The company's long$-$term debt consists of a $$2,500,000$ bond issue sold at par, which pays $12\%$ annual interest and was outstanding throughout Year $2.$ Falcon had no other debt. Falcon's income tax rate is $25\%.$

Required

a$.$ Compute basic and diluted EPS for Year $2.$

b$.$ Assume instead that Falcon issued the stock options on July $1$ of Year $2$ and that the market price of its stock averaged $$53$ per share throughout the last half of Year $2.$ Compute basic and diluted EPS for Year $2.$

Note: Round your answers to the nearest whole number.