Problem
On December 31, 2022, Adam Company had outstanding 400,000 shares of common stock and 20,000 shares of 4% cumulative preferred stock (par $10). The following other events/transactions occurred throughout 2022:
• June 1, 2022, an additional 72,000 shares of common stock were issued
• October 1, 2022, 8,000 shares were retired.
• A 10% stock dividend was declared and distributed on July 1, 2022.
• At year-end, there were fully vested incentive stock options outstanding for 39,200 shares of common stock (adjusted for the stock dividend). The exercise price was $15. The market price of the common stock averaged $20 during the year.
• There were $2,000,000 face amount of 5% convertible bonds issued in 2018 and convertible into 50,000 common shares (adjusted for the stock dividend).
• Net Income for 2022 was $800,000
• The tax rate for the year was 30%.
Task
a) Compute Basic EPS (round to two decimal places) for the year ending on December 31, 2022.
b) Compute Diluted EPS (round to two decimal places) for the year ending on December 31, 2022.