Problem D-VI Basic and Diluted Earnings Per Share

Assume that the following data relate to Rosen, Inc. for the year 2015:

Net income (30% tax rate) $3,500,000

Average common shares outstanding 2015 1,000,000 shares

10% cumulative convertible preferred stock:

Convertible into 80,000 shares of common $1,600,000

8% convertible bonds; convertible into 75,000

shares of common $2,500,000

Stock options:

Exercisable at the option price of $25 per share;

average market price in 2015, $30 84,000 shares

Instructions

Compute (a) basic earnings per share, and (b) diluted earnings per share.