Question

On December 31, 2020, Vitners Company had outstanding 400,000 shares of common stock and 40,000 shares of 8% cumulative preferred stock (par $10). February 28, 2021, issued an additional 36,000 shares of common stock September 1, 2021, 9,000 shares were retired. A 10% stock dividend was declared and distributed on July 1, 2021. At year-end, there were fully vested incentive stock options outstanding for 30,000 shares of common stock (adjusted for the stock dividend). The exercise price was $18. The market price of the common stock averaged $20 during the year. Also outstanding were $1,000,000 face amount of 10% convertible bonds issued in 2018 and convertible into 50,000 common shares (adjusted for the stock dividend). Net income was $900,000. The tax rate for the year was 25%. Required: Compute basic and diluted EPS for the year ended December 31, 2021. (Round your answers to 2 decimal places.)

Answer 1

Answer:

The basic EPS is $1.85 and diluted EPS is $1.77 per share

Explanation:

In order to calculate the basic EPS we would have to use the following formula:

basic EPS= Net income-Dividens/weighted average number of shares

basic EPS= $900,000-(40,000 shares*10%*8%)/(400,000*1.1)+(36,000*10/12*1.1)-(9,000*4/12)

basic EPS= $900,000-$32,000/440,000+33,000-$3,000

=$868,000/470,000

basic EPS=$1.85

In order to calculate the diluted EPS we would have to use the following formula:

diluted EPS= Net income-preference Dividend + stock dividend-tax on stock dividend/weighted average number of shares

diluted EPS=$900,000-($400,000*8%)+($100,000*10%)-($100,000*25%)/(400,000*1.1)+(36,000*10/12*1.1)-(9,000*4/12)+(30,000-(30,000*18/20)+50,000

dilutedEPS=$900,000-$32,000+$100,000+25,000/440,000+33,000-$3,000+(30,000-27,000)+50,000

diluted EPS=$928,000/523,000

diluted EPS=$1.77 per share