ACCT I S 302/702
Gamma Corporation on January 1 2016 had 4,000,000 $1 par value common shares outstanding; 200,000 $100 par 8% convertible preferred shares
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Gamma Corporation on January 1 2016 had 4,000,000 $1 par value common shares outstanding; 200,000 $100 par 8%

convertible preferred shares outstanding, each convertible preferred share is convertible into 2 shares of common stock; and $2,000,000 face value, 4% coupon, 15-year bonds outstanding (issued at par), each $1,000 bond is convertible into 25 shares of common stock. During 2016 and 2017, no new preferred shares or convertible bonds were issued and none of the existing securities were converted to common stock. On September 1 2016 Gamma Corporation repurchased 450,000 shares at a price of $16 for treasury. On July 1 2017 Gamma Corporation issued 900,000 common shares at a price of $27. Gamma Corporation has a marginal tax rate of 40%.


The company also has 500,000 warrants outstanding with an exercise price of $20 and 800,000 stock options outstanding with an exercise price of $12. Common dividends of $0.80 per share were paid in 2016 and the dividend was increased to $1.00 per share in 2017.


Additional information:                                      2016                            2017

                              Net income               $13,920,000                $18,080,000

                              Share price, Jan. 1                   $12                              $21

                              Average for the year               $15                              $24

                              Share price, Dec 31                 $21                              $30


Required: For each year (2016 and 2017), compute basic Earnings per Share (EPS) and diluted EPS. Show all supporting calculations.

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