On December 31, 2015, Brisbane Company had 100,000 shares of common stock outsta

Question

On December 31, 2015, Brisbane Company had 100,000 shares of common stock outstanding and 33,000 shares of 6%, $50 par, cumulative preferred stock outstanding. On February 28, 2016, Brisbane purchased 27,000 shares of common stock on the open market as treasury stock paying $43 per share. Brisbane sold 6,300 treasury shares on September 30, 2016, for $48 per share. Net income for 2016 was $183,905. Also outstanding during the year were fully vested incentive stock options giving key personnel the option to buy 53,000 common shares at $43. The market price of the common shares averaged $53 during 2016.

Explanation / Answer

Calculation of Basic Earning per share:

EPS = (Net income – Preferred dividends) / Weighted Average common shares outstanding

= ($183,905 – $99,000) / 100,000

= 0.8491

Therefore, earnings per share are $0.8491.

note:

Preferred dividend = (33,000 shares * $50 * 6%)

= $99,000

Diluted earnings per share:

= (Net income + after tax interest on debt + Convertible preferred dividends) / (Weighted average no. of common shares + All dilutive potential common stock)

= $84,905 / (100,000 + 27,000 -6,300 +53,000)

= $84,905 / 173,700

= 0.489

Therefore, diluted earnings per share are $0.489.

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.