On December 31, 2008, Merlin Company had outstanding 400,000 shares of common stock and 40,000 shares of 8% cumulative preferred stock (par $10). On February 28, 2009, Merlin issued an additional 36,000 shares of common stock. On September 1, 2009, 9,000 shares were retired. At year-end, there were fully vested incentive stock options outstanding for 30,000 shares of common stock (adjusted for the stock dividend). The exercise price was $18. The market price of the common stock during the year had averaged $20. Also outstanding were $1,000,000 face amount of 10% convertible bonds issued in 2006 and convertible into 50,000 common shares (adjusted for the stock dividend). Net income was $900,000. The tax rate for the year was 40%. A 10% stock dividend was declared and distributed on July 1, 2009.
Required:
Compute basis and diluted EPS for the year ended December 31, 2009.

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The Answer of On December 31, 2008, Merlin Company had outstanding 400,000 shares of common stock and 40,000 shares of 8% cumulative preferred stock (par $10). On February 28, 2009, Merlin issued an additional 36,000 shares of common stock. On September 1, 2009, 9,000 shares were retired. At year-end, there were fully vested incentive stock options outstanding for 30,000 shares of common stock (adjusted for the stock dividend). The exercise price was $18. The market price of the common stock during the year had averaged $20. Also outstanding were $1,000,000 face amount of 10% convertible bonds issued in 2006 and convertible into 50,000 common shares (adjusted for the stock dividend). Net income was $900,000. The tax rate for the year was 40%. A 10% stock dividend was declared and distributed on July 1, 2009.
Required:
Compute basis and diluted EPS for the year ended December 31, 2009.

On December 31, 2008, Merlin Company Had Outstanding 400,000 Shares