Answer: $1.03

### Explanation **Basic EPS Calculation:** - **Net income:** $1,200,000 (no preferred dividends). - **Weighted average shares outstanding:** - 1,000,000 shares for 3 months (January to March): 1,000,000 × (3/12) = 250,000. - 1,100,000 shares for 9 months (April to December): 1,100,000 × (9/12) = 825,000. - **Total weighted average shares:** 250,000 + 825,000 = 1,075,000. - **Basic EPS:** $1,200,000 / 1,075,000 = $1.12. **Diluted EPS Calculation:** - **After-tax interest on convertible bonds:** $2,000,000 × 8% × (1 - 30%) = $112,000. - **Adjusted net income:** $1,200,000 + $112,000 = $1,312,000. - **Additional shares from conversion:** 200,000. - **Total diluted shares:** 1,075,000 + 200,000 = 1,275,000. - **Diluted EPS:** $1,312,000 / 1,275,000 = $1.029, rounded to **$1.03**. **Why not A or C?** - **Option A** incorrectly uses the period-end shares (1,100,000) plus conversion shares (200,000) without weighting, leading to an incorrect denominator. - **Option C** mistakenly adds the pre-tax interest ($160,000) to net income instead of the after-tax interest, resulting in an inflated numerator.

Author: LeetQuiz Editorial Team