On December 31, 2012, Evan Company had 100,000 shares of common stock outstandin

ID: 2758343 • Letter: O

Question

On December 31, 2012, Evan Company had 100,000 shares of common stock outstanding and 30,000 shares of 7%, $50 par, cumulative preferred stock outstanding. On February 28, 2013, Evan purchased 24,000 shares of common stock on the open market as treasury stock paying $45 per share. Evan sold 6,000 of the treasury shares on September 30, 2013, for $47 per share. Net income for 2013 was $180,905. Also outstanding at December 31, 2012, were fully vested incentive stock options giving key personnel the option to buy 50,000 common shares at $40. These stock options were exercised on November 1, 2013. The market price of the common shares averaged $50 during 2013. Required: Calculate Evan's basic and diluted earnings per share (rounded to 2 decimal places) for 2013.

Explanation / Answer

Basic earnings per share is computed by dividing the net income by common shares outstanding

BEP for the year 2013= $180,905/100,000

=1.80 per share

Assume that the net income is after paying dividends to preference holders.

Diluted earnings per share = Net income/Diluted shares

=$180,905/132,000

=1.37

Particulars

Numbers

Opening balance of shares

1,00,000

Less:

Treasury stock

24,000

Add:

Issue of treasury stock

6,000

Add:

Stock options

50,000

Total

1,32,000