The information below pertains to Barkley Company for 2015.

Net income for the year $2,240,000
9% convertible bonds issued at par ($1,000 per bond); each bond is convertible into 30 shares of common stock 2,112,000
6% convertible, cumulative preferred stock, $100 par value; each share is convertible into 3 shares of common stock 4,707,000
Common stock, $10 par value 6,959,000
Tax rate for 2015 45%
Average market price of common stock $25 per share

There were no changes during 2015 in the number of common shares, preferred shares, or convertible bonds outstanding. There is no treasury stock. The company also has common stock options (granted in a prior year) to purchase 75,800 shares of common stock at $15 per share.

a. Compute basic earnings per share for 2015.
b. Compute diluted earnings per share for 2015.

EPS: 3.04

Diluted EPS:  2.50

Explanation:

Earnings per share:

preferred dividends: 2,112,000 x 6% = 126,720

2,240,000 income - 126,720 = 2,113,280‬

outstanding shares:

$6,959,000 / 10 each = 695,900

EPS 2,113,280 / 695,900 = 3,03675

Diluted EPS:

we will calculate as if all possible new share option are exercised.

convertible bonds

2,240,000 / 1,000 = 2,240 bonds

2,240 bonds x 30 possible new shares = 67,200

convertible preferred stock

2,112,000 / 100 = 2,112 preferred stock

2.112 x 3 possible new shares = 6,336‬

stock option: 75,800

Total shares: 695,900 + 67,200 + 6,336 + 75,800 = 845,236

2,113,280‬ / 845,236 = 2,50022 = 2.50

b. a single paragraph.

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