Exercise 19-20 EPS; shares issued; stock options [LO19-6, 19-7, 19-8, 19-9] Stan
ID: 2516197 • Letter: E
Question
Exercise 19-20 EPS; shares issued; stock options [LO19-6, 19-7, 19-8, 19-9]
Stanley Department Stores reported net income of $746,000 for the year ended December 31, 2018.
Additional Information:
Required:
Compute Stanley’s basic and diluted earnings per share for the year ended December 31, 2018. (Enter your answers in thousands.)
Common shares outstanding at Jan. 1, 2018 70,000 Incentive stock options (vested in 2017) outstanding throughout 2018 12,000 (Each option is exercisable for one common share at an exercise price of $21.50) During the year, the market price of Stanley’s common stock averaged $25.8 per share. On Aug. 30 Stanley sold 15,000 common shares. Stanley’s only debt consisted of $33,000 of 10% short term bank notes. The company’s income tax rate is 40%.Explanation / Answer
Answer
Answer in thousands:
1.
Basic earnings per share for the year ended December 31:
=Net income / Outstanding shares
=$746 / (70+15*4/12)
=$746 / 75 shares
=$9.95 per share
2.
Diluted earnings per share for the year ended December 31:
=$746 / (70 + [15*4/12] + [12-10])
=$746 / (70 + 5 + 2)
=9.69 per share
Purchase Incentive stock options:
=12000 shares*$21.50 = 258000
=258000/25.8
Total shares 10000 shares
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