Question - Paul Company had 112,000 shares of common stock outstanding throughout 2013.

Paul also had 10,000 share of convertible preferred stock outstanding throughout 2013. The noncumulative preferred stock is $100 par, 6%, and is convertible into 3 shares of common stock for each share of preferred.

In addition, fully vested incentive stock options for 60,000 shares of common stock at an exercise price of $50 were outstanding at the beginning of 2013. The market price of the common stock averaged $56 during the year.

Reported net income for 2013 was $300,000 with a 40% tax rate.

Common shareholders received $2 per share dividends after preferred dividends were paid in 2013.

Required:

a. Compute the basic earnings per share (rounded to 2 decimal places) for 2013.

b. Compute the diluted earnings per share (rounded to 2 decimal places) for 2013.