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Convertible noncumulative 6% preferred stock, $100 par issued at $104, 8,000 shares. Each preferred share is convertible into 4 shares of common stock. $800,000

Nonconvertible cumulative 8% preferred stock, $20 par $100,000

Net income, Year 1 $2,000,000

Other information:

Vested, incentive employee stock options, exercisable at $23 per share, 400,000 options outstanding for the entire year.

Vested, incentive employee stock options, exercisable at $14 per share, 300,000 options outstanding for the entire year.

Warrants exercisable at $15 per share, 20,000 warrants outstanding for the entire year.

Preferred dividends were declared and paid at the stated rates. On December 31, Year 1, the price per common share was $22, and the average price for the year was $20. All convertible securities, options, and warrants have been adjusted for the stock dividend. The tax rate is 20%.

The following common shares transactions took place during the year.


Shares transactions

Number of shares

January 1, Year 1

Shares outstanding,


April 1, Year 1

Shares issued


June 1, Year 1

25% stock dividend issued


October 1, Year 1

Treasury shares repurchased


1. Compute Basic Earnings per Share, showing the number to 4 decimal places.

2. Identify and list the potentially dilutive securities. Note that any security that may require shares to be issued at some point is a potentially dilutive security.


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