Problem - Below is selected information for Freeman Corporation for the year ended December 31, 20X3:

Freeman Corporation Selected Balance Sheet Information December 31, 20X3

Long-term Debt

10% notes payable $1,000,000

7% convertible bonds payable 5,000,000

Discount (98,400)

10% bonds payable 6,000,000

Total Long-term Debt $11,901,600

Shareholders' Equity

Preferred stock, 6% cumulative, $50 par value, 100,000 shares authorized, 25,000 shares issued and outstanding $1,250,000

Common stock, $1 par, 10,000,000 shares authorized, 1,000,000 shares issued and outstanding 1,000,000

Additional paid-in capital 4,000,000

Retained earnings 6,233,400

Total Shareholders' Equity $12,483,400

The following transactions also occurred for Freeman:

1. Options were granted on July 1, 20X1 to purchase 200,000 shares at $15 per share. Although no options were exercised during fiscal year 20X3, the average price per common share during fiscal 20X3 was $20 per share.

2. The 7% convertible bonds were issued on January 2, 20X0 at a price to yield 8%. Each $1,000 bond is convertible into 50 shares of common stock. No bonds were converted in 20X3.

3. The preferred stock was issued on May 1, 20X1. There are no preferred dividends in arrears; however, preferred dividends were not declared in fiscal year 20X3.

4. At the beginning of 20X3, 50,000 shares of common stock were held by Freeman as treasury stock. The treasury stock was reissued on May 1, 20X3 at $21 per share. On September 30, 20X3 Freeman issued 400,000 new shares of common stock for $18 per share.

5. Net income for fiscal year 20X3 was $1,500,000 and the average tax rate is 30%.

Required:

1. Calculate weighted average shares of common stock outstanding on December 31, 20X3.

2. Calculate basic earnings per share for the year ended December 31, 20X3, showing all work.

3. Calculate diluted earnings per share for the year ended December 31, 20X3, showing all work.