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for neo P16-7 (Computation of Basic and Diluted EPS) (L0

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P16-7 (Computation of Basic and Diluted EPS) (L0 7)
The information below pertains to Prancer Company for 2007.

Net income for the year $1,200,000
8% convertible bonds issued at par ($1,000 per bond).
Each bond is convertible into 40 shares of common stock. 2,000,000
6% convertible, cumulative preferred stock, $100 par value.
Each share is convertible into 3 shares of common stock. 3,000,000
Common stock, $10 par value 6,000,000
Common stock options (granted in a prior year) to purchase 50,000 shares of common
stock at $20 per share 500,000
Tax rate for 2004 40%
Average market price of common stock $25 per share

There were no changes during 2007 in the number of common shares, preferred shares, or convertible bonds outstanding. There is no treasury stock.

(a) Compute basic earnings per share for 2007.
(b) Compute diluted earnings per share for 2007.

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