Assume that the following data relative to Eddy Company for 2015 is available: N

Question

Assume that the following data relative to Eddy Company for 2015 is available: Net Income $2,400,000 Transactions in Common Shares Change Cumulative Jan. 1, 2015, Beginning number 600,000 Mar. 1, 2015, Purchase of treasury shares (60,000) 540,000 June 1, 2015, Stock split 2-1 440,000 1,080,000 Nov. 1, 2015, Issuance of shares 120,000 1,200,000 7% Cumulative Convertible Preferred Stock Sold at par, convertible into 200,000 shares of common (adjusted for split). $1,000,000 Stock Options Exercisable at the option price of $25 per share. Average market price in 2015, $30 (market price and option price adjusted for split). 60,000 shares INSTRUCTIONS (a) Compute the basic earnings per share for 2015. (Round to the nearest penny.) (b) Compute the diluted earnings per share for 2015. (Round to the nearest penny.)

Explanation / Answer

Answer: Computation of weighted average shares outstanding during the year:

Additional shares for purposes of diluted earnings per share:

(a) Basic earning per share=(2400000-70000)/1120000=$2.08

(b) Diluted earning per share=2400000/(1120000+210000)=$1.80

1-Jan Outstanding 600000 1-Mar Repurchase (5/6*60000) -50000 550000 1-Jun 2 for 1 Split 1100000 1-Nov issued (1/6*120000) 20000 1120000

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