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 32,000 shares of 7%, $50 par, cumulative preferred stock outstanding. On February 28, 2016, Brisbane purchased 26,000 shares of common stock on the open market as treasury stock paying $42 per share. Brisbane sold 6,200 treasury shares on September 30, 2016, for $47 per share. Net income for 2016 was $182,905. Also outstanding during the year were fully vested incentive stock options giving key personnel the option to buy 52,000 common shares at $42. The market price of the common shares averaged $52 during 2016. Required: Compute Brisbane's basic and diluted earnings per share for 2016. (Round your answers to 2 decimal places.)

Explanation / Answer

Basic EPS

Income for 2016 = 182,905

Income after 7% dividend on cumulatie peference share = 182,905 - ( 7% X 1,600,000) = $ 70,905

Outstanding shares = 100,000 - (26,000 X 10/12) + ( 6,200 X 3/12 ) = 79,884

Basic earning per share = 70,905 / 79,884 = 0.89 per share

Diluted EPS

Outstanding shares = 79,884 + 10,000 = 89,884

Diluted EPS = 70,905 / 89,884 = 0.79 per share

Working

Option to be exercised = 52,000 shares

shares to be bought back with proceeds = (52,000 X 42) / 52 = 42,000 shares

so difference = 10,000 shares

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