Question

On December 31, 2020, Brisbane Company had 100,000 shares of common stock outstanding and 28,000 shares of 6%, $50 par, cumulative preferred stock outstanding. On February 28, 2021, Brisbane purchased 22,000 shares of common stock on the open market as treasury stock paying $38 per share. Brisbane sold 5,800 treasury shares on September 30, 2021, for $43 per share. Net income for 2021 was $178,905. Also outstanding during the year were fully vested incentive stock options giving key officers the option to buy 48,000 common shares at $38. The market price of the common shares averaged $48 during 2021.
Compute Brisbane's basic and diluted earnings per share for 2021.

Answer 1

Answer:

basic earnings per share = $1.14

diluted earnings per share = $1.02

Explanation:

net income = $178,905

preferred stocks = 28,000 x 6% x $50 = $84,000

January 1, 100,000 shares outstanding x 12/12 = 100,000

February 28, purchased -22,000 treasury stocks x 10/12 = -18,333

September 30, sold 5,800 treasury stocks x 3/12 = 1,450

total weighted average stocks = 83,117

diluted stocks = [($48 - $38) / $48] x 48,000 = 10,000

basic earnings per share = (net income - preferred dividends) / weighted average stocks = ($178,905 - $84,000) / 83,117 stocks = $1.14

diluted earnings per share = (net income - preferred dividends) / (weighted average stocks + diluted stocks) = ($178,905 - $84,000) / (83,117 + 10,000 diluted stocks) = $1.02