During 2014, Gutter Company. had 500,000 shares of common stock and 50,000 share

Question

During 2014, Gutter Company. had 500,000 shares of common stock and 50,000 shares of 6% cumulative preferred stock outstanding. The non-convertible preferred stock has a par value of $100 per share. Gutter did not declare or pay any dividends during 2014. Gutter's net income for the year ended December 31, 2014, was $2.5 million. The income tax rate is 40%. Gutter granted 10,000 stock options to its executives on January 1 of this year. Each option gives its holder the right to buy 20 shares of common stock at an exercise price of $29 per share. The market price of the common stock averaged $30 per share during 2014, and the stock price on December 31, 2014 was $32 per share.

A)What is the basic earnings per share reported by Gutter Company. for 2014?

B) What is the diluted earnings per share reported by Gutter Company for 2014?

Explanation / Answer

$ Net income for the year ended December 31,2014 2,500,000 Basic EPS ( net income/ 500,000 shares) $ 5 Diluted EPS ( net income / 700,000 shares) $3.57

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