Reference no: EM132720015

For the year ended December 31, 20X5, Stratus Inc. (SI) had a net income attributable to common shareholders of $25,000. The weighted average number of common shares outstanding and issued at year end was 15,000. Additional information for this year end were as follows:

1. Basic earnings per share for the year was $1.67.
2. SI had $525,000 in 8% convertible bonds. Each $500 bond is convertible into 20 common shares. 
3. SI had 1,000, $150, 3% cumulative preference shares outstanding during the year. Each preference share is convertible into four common shares. 
4. SI had stock options that granted the employees the right to buy 5,000 common shares for $123. 
5. The average market price for the year was $115. 
6. SI is subject to a tax rate of 20%.

Problem 1: Which of the following correctly orders each of the above potential common share items from most dilutive to least dilutive?

Option 1: (1) Convertible bonds, (2) Convertible preference shares, (3) Stock options

Option 2: (1) Convertible preference shares, (2) Convertible bonds, (N/A) Stock options are anti-dilutive

Option 3: (1) Stock options, (2) Convertible bonds, (3) Convertible preference shares

Option 4: (1) Convertible bonds, (2) Stock options, (N/A) Convertible preference shares are anti-dilutive