DILUTED EARNINGS PER SHARE --- STOCK OPTIONS Kulkulcan Technology Co. provides t

Question

DILUTED EARNINGS PER SHARE --- STOCK OPTIONS Kulkulcan Technology Co. provides the following data at December 31, 2015. Operating Revenue……………………………………………………. $1,460,000 Operating expenses……………………………………………………. $790,000 Income tax rate………………………………………………………… 35% Common stock outstanding during the entire year…………………. 34,000 shares On January 1, 2015, there were options outstanding to purchase 9,000 shares of common stock at $20 per share. The average market price for the year was $26 per share. The balance sheet reports $510,000 of 7% nonconvertible bonds at December 31, 2015. (Interest expense is included in operating expenses.) Instructions: 1. Compute basic EPS for 2015. 2. Compute diluted EPS for 2015.

Explanation / Answer

Computation of basic EPS for 2015 Operating Revenue $14,60,000 Less : Operating Expenses $7,90,000 Profit before tax $6,70,000 Less : Income tax @ 35% $2,34,500 Profit after tax available for common stock holders $4,35,500 Common stock outstanding 34000 Earning per share (EPS) $12.81 Computation of diluted EPS for 2015 Profit after tax available for common stock holders $4,35,500 Common stock outstanding + shares in option outstanding 43000 Diluted EPS $10.13

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