As part of its executive compensation plan, Vertovec Inc. granted 60,000 of its

Question

As part of its executive compensation plan, Vertovec Inc. granted 60,000 of its no par common shares to executives, subject to forfeiture if employment is terminated within three years. Vertovec’s common shares have a market price of $15 per share on January 1, 2017, the grant date of the restricted stock award, as well as on December 31, 2018. 1,500,000 shares were outstanding at January 1, 2018. Net income for 2018 was $420,000.

Required:

Compute Vertovec’s basic and diluted earnings per share for the year ended December 31, 2018. (Enter your answers in thousands.)

Explanation / Answer

SOLUTION

1. Basic EPS = Net Income / Weighted avergae no. of shares

= $420,000 / 1,500,000 shares = $0.28

2. Diluted EPS = Net Income / Weighted avergae no. of shares

Weighted avergae no. of shares-

Compensation expense per year = (60,000 shares * $15 marker price) / 3 years vesting period

= $900,000 / 3 = $300,000

Expensed in two years = $300,000 * 2 = $600,000

Unexpensed compensation = $900,000 - $600,000 = $300,000

Assumed purchase of treasury shares = $300,000 / $15 market price = 20,000 shares

Weighted avergae no. of shares = 1,500,000 shares + 60,000 shares - 20,000 shares = 1,540,000 shares

Diluted EPS =  $420,000 / 1,540,000 shares = $0.27

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