Stanley Department Stores reported net income of $963,000 for the year ended Dec

Question

Stanley Department Stores reported net income of $963,000 for the year ended December 31, 2016. Additional Information: Common shares outstanding at Jan. 1, 2016 Incentive stock options (vested in 2015) outstanding throughout 2016 (Each option is exercisable for one common share at an exercise price of $28.50) During the year, the market price of Stanley's common stock averaged $34.2 per share. On Aug. 30 Stanley sold 15,000 common shares Stanley's only debt consisted of $47,000 of 10% short term bank notes. The company's income tax rate is 40% 145,000 36,000 Required Compute Stanley's basic and diluted earnings per share for the year ended December 31, 2016. (Enter your answers in thousands.) Numerator, Denominator = Earnings per Share Basic EPS Diluted EPS

Explanation / Answer

Basic EPS = Net income/ Weighted Average no. of common stock

Weighted Average no. of common stock:

Basic EPS = $963000/ 150000 = $6.42

Diluted EPS:

Step 1: Test for dilution:

Dilutive EPS = $963000/ 186000 = $5.18

Summary

Beginning balance no. of common stock 145000 Add issued on Aug 30 (15000 x 4/12) 5000 Weighted Average no. of common stock 150000

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