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E$15\mathrm{.}23($LO $5)($EPS with Convertible Bonds$)$ On June $1,2023,$ Andre Company and Agassi Company merged to form Lancaster Inc. A total of $800,000$ shares were issued to complete the merger. The

new corporation reports on a calendar$-$year basis.

On April $1,2025,$ the company issued an additional $400,000$ shares of stock for cash. All $1,200,000$ shares were outstanding on December $31,2025.$

Lancaster Inc. also issued $$600,000$ of $20-$year, $8\%$ convertible bonds at par on July $1,2025.$ Each $$1,000$ bond converts to $40$ shares of common at any interest date. None of the bonds have been converted to

date.

Lancaster Inc. is preparing its annual report for the fiscal year ending December $31,2025.$ The annual report will show earnings per share figures based upon a reported after$-$tax net income of $$1,540,000.$

$($The tax rate is $20\%.)$

Instructions

Determine the following for $2025.$

a$.$ The number of shares to be used for calculating:

Basic earnings per share.

Diluted earnings per share.

b$.$ The earnings figures to be used for calculating:

Basic earnings per share.

Diluted earnings per share.