On January 1, 2011, Tonge Industries had outstanding 440,000 common shares (par

Question

On January 1, 2011, Tonge Industries had outstanding 440,000 common shares (par $l) that originally sold for $20 per share, and 4,000 shares of 10% cumulative preferred stock (par $100), convertible into 40,000 common shares.

On October 1, 2011, Tonge sold and issued an additional 16,000 shares of common stock at $33. At December 31, 2011, there were incentive stock options outstanding, issued in 2010, and exercisable after one year for 20,000 shares of common stock at an exercise price of $30. The market price of the common stock at year-end was $48. During the year the price of the common shares had averaged $40.

Net income was $650,000. The tax rate for the year was 40%.

Required:
Compute basic and diluted EPS for the year ended December 31, 2011

Explanation / Answer

Basic EPS = (Net income-preferred dividends)/ No of equity shares = (650000-40000)/456000 = 1.33 share answer Diluted EPS = (650000-200000)/ 516000 = 0.87/ shares answer

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