Answer:
(a)Basic earnings per share $1.94
(b)Diluted earnings per share $1.74
Explanation:
Cullumber Company
Computation of weighted average shares outstanding during the year:
January 1 Outstanding 740,000
March 1 Repurchase (5/6 × 60,000)(50,000) 690,000
June1 2-for-1 split 1,380,000
(740,000+690,000-50,000)
November 1 Issued (1/6 × 234,000)39,000
(1,380,000+39,000) 1,419,000
Additional shares for purposes of diluted earnings per share:
Potentially dilutive securities
6% convertible preferred stock 180,000
Stock options
Proceeds from exercise of 90,000 options (90,000 × $25)$2,250,000
Shares issued upon exercise of options
$90,000
Less: treasury stock purchasable with proceeds ($2,250,000 ÷ $30)75,000
($90,000-$75,000) $15,000
Dilutive securities—additional shares ($180,000+$15,000) $195,000
(a)Basic earnings per share:$2,820,000 -$60,000/1,419,000
=$2,760,000/$1,419,000
=$1.94
(b)Diluted earnings per share:
$2,820,000/$1,419,000+$195,000
=$2,820,000/$1,614,000
=$1.74
