Answer:
Weighted average shares outstanding = 1,337,000
Basic EPS = $2.07
Diluted EPS = $1.78
Explanation:
Computation of Weighted Average Shares outstanding for 2018
Date Particulars Shares
1-Jan Outstanding 690,000
1-Mar Repurchase (25/30 x 50,400) -42,000 = 648,000
1-Jun Stock split 2-1 (648,000 x 2) = 1,296,000
1-Nov Issued (1/6 x 246,000) = 41,000
Weighted Average Shares outstanding = 1,337,000
Computation of Basic Earnings per share for the year 2018
Basic Earnings per Share (Total Income - Preferred Dividend) / Outstanding Shares
($2,830,000 - $63,000) / 1,337,000 shares
2,767,000/1,337,000 shares
$2.07
Hence EPS basic = $2.07
Note: Preferred Dividend = 6% x $1,050,000 = $63,000
Additional shares for purposes of diluted earnings per share
Particulars Shares
Potentially Dilutive Securities
6% Cumulative Convertible Preferred Stock 210,000
Stock Options
Proceeds from exercise of 96,000 options (96,000 x $25)
= $2,400,000
Shares issued upon exercise of options = 96,000
Less: Treasury stock purchasable with proceeds
($2,400,000 / $30) = 80,000
hence, (96,000 - 80,000) = 16,000
Dilutive Securities (Additional Shares) = 216,000
Computation of Diluted Earnings per share for the year 2018
Diluted Earnings per Share (Total Income - Preferred Dividend) / (Outstanding Shares + Diluted Shares)
(2,830,000 - $63,000) / (1,337,000 + 216,000) shares
$2,767,000 / 1,553,000 shares
$1.78
Hence EPS dilute = $1.78
