Answer:
Basic earning per share = 1.01 per share
Diluted earning per share = = 0.95 per share
Explanation:
The computation of basic earning per share and diluted earning per share is shown below:-
Income after 7% dividend on cumulative preference share = Net income - (Shares percentage × Shares × par, cumulative preferred stock outstanding)
= $172,905 - (7% × 24,000 × $50)
= $172,905 - $84,000
= 88,905
We assume the closing of books company are closed on 31 Dec so according to that 3 months are taken from Oct to Dec and 10 months are taken from March to Dec
Outstanding shares = Shares of common stock - (Purchased shares × 10 ÷ 12) + (Sold treasury shares × 3 ÷ 12)
= 100,000 - (16,000 × 10 ÷ 12) + (5,200 × 3 ÷ 12)
= 100,000 - 13,333 + 1,300
= 87,967
Now,
Basic earning per share = 88,905 ÷ 87,967
= 1.01 per share
Diluted earning per share
shares to be buy back with proceeds = (42,000 × $27) ÷ $31
= 36,580
Difference = Option to be exercised - Outstanding shares
= 42,000 - 36,580
= 5,420
Outstanding shares = 87,967 + 5,420
= 93,387
So,
Diluted earning per share = 88,905 ÷ 93,387
= 0.95 per share
